Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Question 80-94)



  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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