Examination of Witnesses (Question 80-94)
MR RON
GRANT, MR
JIM MORRISON
AND MR
JOE OATLEY
7 NOVEMBER 2006
Q80 Mr Hamilton: My question is the
one that I asked the people at the beginning and they were the
major companies and we are now talking to SMEs. In the time that
I have been on this Committee, I have visited a number of places
throughout Scotland and one common complaint that came from all
the smaller companies was the way in which they were being treated
by some of the major companies where they are sub-contracted out
to. Naturally that is a very delicate issue, but, coming from
a large industry, I realise that is exactly what the National
Coal Board did to small companies. Do you have direct access to
the Ministry in relation to any contracts that are being done
or are you moving towards a position where you are becoming dependent
on the sub-contract with major companies because the Ministry
is actually having direct negotiations with the major companies
rather than taking the bother to talk to some of the smaller companies?
Do you have direct access?
Mr Oatley: On Astute, we contract
with BAE, but we have a large amount of direct contact still with
the Ministry people at all levels and we find them very supportive.
I would say that historically the relationship with BAE would
at times be the way you have described and I think in the last,
and Murray Easton referred to this earlier on, 18 months to two
years both they and we have worked very hard to try and change
that and to work much more in a partnership arrangement rather
than a confrontational supplier/customer sub-contract relationship.
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.
Mr Morrison: I have not noted
any great differences between the way that we have contracted
for boat four as compared to boats one to three and, therefore,
I would not have thought that our relationship with our sub-contractors
would have changed significantly, if at all. I would reiterate
what Joe has just said about the relationship with BAE and through
the Key Supplier Forum and that we are beginning to try to work
together. With these boats we only negotiate with BAE and BAE
negotiate in turn with the MoD, so we do not have a great many
interfaces through the Astute programme directly with the MoD.
Mr Grant: We still contract directly
with the Ministry of Defence and indeed we are in a partnering
agreement with the Ministry of Defence for the through-life support
and post-design services for most of the equipment which we are
presently involved with. What I would say is that I would like
to endorse the comments of Joe Oatley. The Key Supplier Forum,
which Murray Easton made mention of earlier on, really has got
us quite excited because for the first time I think we are seeing
an environment where we can actually get around the table with
private contractors, have access to the Ministry at the same time
and to the Navy, and it is, I believe, starting to yield genuine
benefit in both lower costs and obviously ultimate affordability.
I picked up one of the questions from the earlier presentation
with regard to what through-life costs really mean and whether
people were recognising it for what it was, and I think there
is still an issue of an obsession with acquisition costs without
fully understanding the implications through life. I think the
Key Supplier Forum, in giving us better focus and allowing us
certainly to have a better design focus, the efficiencies that
come from that will yield lower costs and affordability, and we
are very excited and pleased to be part of the programme.
Q81 Robert Key: Mr Grant, do you
think the Ministry of Defence understood how close your company
came to closing down?
Mr Grant: I think it understood
it, but I am not sure whether it was necessarily the highest feature
on its agenda at that particular time, bearing in mind at that
time the Ministry of Defence was substantially downsizing itself
and looking at new methods of contracting and engaging with industry.
Q82 Robert Key: The Defence Industrial
Strategy identifies affordability as a key element in the decision
over any potential Vanguard and Trident successor. Do you think
that the Defence Industrial Strategy has taken on board the significance
of through-life costs in the way you were just describing?
Mr Grant: Yes, I do, but I think
that it is a culture change which is not going to happen overnight.
Q83 Robert Key: And that is being
addressed in the Key Supplier Forum, is it?
Mr Grant: Yes, it is.
Q84 Robert Key: Do you, Mr Oatley,
agree that the Key Supplier Forum is a helpful innovation?
Mr Oatley: Yes, without doubt
it is. I think I would echo what Ron Grant says about the need
for more emphasis on through-life support and I still think that
not enough attention is paid to the cost of through-life support.
Even with the good work we are doing on the Key Supplier Forum,
still the main, by an order of magnitude, focus of that is unit
production costs rather than through-life costs, so I still believe
that there is not enough attention paid to the full through-life
costs of the programme.
Q85 Robert Key: Mr Morrison, do you
agree with that?
Mr Morrison: We have had an approach
from the Key Supplier Forum for all the reasons that I have spoken
about. What we have tried to do with boat four and for future
boats is really to get a design freeze. We have had the drawings,
we have had the design and it is really a question of us being
able to handle our supply chain, so what we have tried to do is
tried to shy away from design changes and that really precludes
us from beginning to look at changes in the design for through-life
costs.
Q86 Robert Key: Do you think the
Ministry of Defence, for all that it requires, understands the
distinction between the very large main contractors and the small
sub-contractors in the industry on which the main contractors
depend?
Mr Grant: I think it is starting
to understand because of its participation in this Key Supplier
Forum as well. It is possibly having a vision of interaction between
prime contractors and the second tier of sub-contractors which
perhaps it had not paid too much attention to before and I think
there is an awareness coming from the Key Supplier Forum particularly
that it is a team approach which very much needs coherence in
all sectors of the chain.
Q87 Robert Key: Mr Morrison, you
were shaking your head in disagreement.
Mr Morrison: No, sorry, a personal
twitch, I think!
Q88 Chairman: Is DML on the Key Supplier
Forum?
Mr Morrison: No.
Mr Oatley: Well, the Key Supplier
Forum is an instigation of BAE's, not the Ministry's and it is
focused upon the key suppliers to the Astute programme and DML
are not a key supplier to the Astute programme, so its instigation
was very much upon looking at the supply chain for the Astute
programme and trying to work more closely with that supply chain
to get, as I said, actually a better unit production cost. That
was the main focus when we set off with the Key Supplier Forum.
Q89 Chairman: Here you are talking
about the need to look at the through-life maintenance and, thus,
the costs of support and yet the people who are actually doing
the support are not on the Forum that discusses this.
Mr Oatley: There are a number
of DLO representatives who do come to the Forum.
Q90 Chairman: DLO representatives?
Mr Oatley: So there are Ministry
of Defence people who are involved in the support costs and obviously
many of the suppliers, ourselves included, are providing the in-service
support of their own products, but yes, the main focus of that
group is production costs, not through-life costs.
Q91 Chairman: Is this an issue we
should take up with BAE Systems?
Mr Oatley: I guess I would question
whether it is an issue for BAE Systems or an issue for the Ministry.
Q92 Chairman: But you said it was
a BAE Systems' initiative.
Mr Oatley: It is indeed and the
intent of it or my understanding of the intent of the Key Supplier
Forum when we set it up was to really focus hard on making the
Astute programme affordable because the key issue we had a year
ago was that the programme was looking like it was unaffordable
and may not be able to continue at its projected cost, so we had
a very urgent need to all sit down and try and understand how
we could work together to make the Astute programme, in terms
of its unit production costs, more affordable, so that was its
pure objective when we started, so I guess yes is the short answer
to your question.
Chairman: We shall pursue this further.
Q93 Linda Gilroy: Education and training,
you have touched on a number of issues which probably give us
some insight into the industrial skill areas in which there are
significant shortages. Is there anything from the experience of
your companies that you want to add to what you have already said
about what areas that affect your companies there are skill shortages
in?
Mr Oatley: I think this is common
across many industries in the UK at the moment, that there is
a definite engineering skills shortage. We have a significant
graduate training programme and we brought in nine graduates this
year and we continue with that every year, so we do not have too
much difficulty in attracting new engineering talent into the
company. Our key issue is retaining it once we have trained it
up. I think Ron Grant mentioned this earlier, that one of the
other key aspects is the experience and knowledge of the application
in which that engineering is used and the submarine application
is particularly challenging. We have a rule of thumb that it takes
about 10 years to become truly proficient in the submarine environment,
so there is a very long lead-time between injecting new talent
at the bottom and their becoming really very proficient in that
environment and that is the big problem, that if you lose a lot
of people who are experienced, it takes a long time to replace
them.
Mr Grant: We have a very active
apprenticeship scheme, we also sponsor graduates and we also have
graduates not of our direct sponsorship coming in for work experience
from time to time. We also do a lot of work in local schools,
the purpose here being to raise the profile of engineering in
the manufacturing industry because there is still a perception
among young people coming through school that engineering is not
necessarily a particularly attractive route to be going down and
the manufacturing industry perhaps means getting dirty, so we
do work hard to try and bring youngsters in from local schools
which I think is an important feature of our training. We also
train Navy personnel. We have various specialist test facilities
on our site. For example, on our handling equipment, we have industrial
reference equipment which enables the Navy to replicate obviously
in-service experiences and carry out testing on-site, so not only
training on our own personnel, but investment in training of Navy
personnel is also a key element of our activity.
Mr Morrison: We have only begun
to embark on recruiting young graduate engineers after many years
of restructuring, so I think it is a bit early for me to be able
to respond to you.
Q94 Linda Gilroy: So from what has
been said, I take it that it is sort of general engineering skills,
getting people started in your industries, rather than specific
areas that we have been talking about earlier on?
Mr Oatley: It is the specific
areas where I would have a concern. We can, and do, recruit young
general engineers and then train them in those specific areas,
but, as I said earlier, the time to do that is quite considerable
and we can lose those people with specific skills to different
industries because they are still very employable within a different
industry as a senior engineer, so it is those specialist skill
areas where I focus my attention in terms of retaining key skill
sets.
Chairman: I think that is it, unless
anybody wants to ask any other questions. Thank you very much
indeed to all three of you. It has been most helpful and most
interesting.
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