Examination of Witnesses (Questions 220-239)
LORD DRAYSON,
MR DAVID
GOULD CB, MR
NICK BENNETT
AND REAR
ADMIRAL ANDREW
MATHEWS
21 NOVEMBER 2006
Q220 Chairman: As a matter of
fact, do you believe that the US and the French submarines are
more expensive than the British ones?
Lord Drayson: I do, yes.
Q221 Willie Rennie: Is it our
defence needs or is it the industry demands or their needs that
are determining this debate? I am a bit confused.
Lord Drayson: It is absolutely
the defence needs which come first. That is something which underpins
our whole policy. It goes across defence in that the Defence Industrial
Strategy very clearly puts the defence needs first and this is
a decision which will be dictated by the decision that is taken
based upon the strategic defence of the country. Once that decision
is taken, an implementation of that decision needs to take into
account the realities of the industrial base which we will acquire
should we decide to go down a particular track. The responses
I am giving really reflect our understanding of those realities
as they face us today.
Q222 Mr Hancock: When the Rear
Admiral first spoke he talked about seven Astute submarines, subject
to affordability and whether we as a nation could afford them.
If we cannot afford the seven and we end up with five, then Barrow
have a big problem because they would not be able to hold the
workforce, would they, for the period of time from the completion
of the fifth boat to the start of work on the first replacement
Trident? So you cannot have it both ways, can you? You cannot
say there is a steady flow and this is all being done to fit in.
If we cannot afford seven Astute submarines because the costs
cannot be got right, then we have a serious problem in holding
onto that expertise anyway, so what is the remedy then?
Rear Admiral Mathews: I did not
say we could not afford, I said that we had to make them affordable
and I cannot order seven submarines just to make them fit in;
that is not the position we are in. Where we are, is that industry
understand that they have to make these submarines affordable
and that is what we are working hard with them to do, to deliver
an affordable programme which delivers the right number of submarines
to support our defence requirements. That is where we are pushing.
Q223 Mr Havard: May I just be
clear about this business of skills? What I was getting from you
Mr Gould was that what is crucial are the skills necessary to
produce a nuclear-powered submarine as opposed to a nuclear-armed
submarine. Is that correct? Doubtless there is a relationship
here, but how crucial is that difference? Could you have a nuclear-powered
conventionally-armed submarine? How different is the cost of that
and the skills necessary to produce that than for a nuclear-powered
and nuclear-armed submarine?
Mr Gould: To produce a nuclear-powered
conventionally-armed submarine, which is what the Astute class
is, requires very much the same skills as producing a ballistic-missile-firing
submarine, but to produce the weapon system for a ballistic-missile-firing
submarine is quite different. We need all the skills we have at
Aldermaston to produce the warhead for that system and we had
the programme of cooperation with the US on Polaris and on Trident
to produce the missile and the fire control system for that. The
ballistic-missile-firing submarine is the set of skills you need
for the conventionally armed submarine plus a lot of others, which
is where the warhead technology comes in, but also there are some
issues with the design of a ballistic-missile-firing submarine
which are different. A complication is that if we continue a programme
of cooperation with the US, if that is the decision, the rhythms
for the US programme are slightly different in terms of submarine
and ballistic missiles.
Q224 Mr Havard: But the skills
sets and the numbers of people involved in the production of the
submarine, just the platform, is not hugely different.
Mr Gould: No, not hugely different.
Q225 Mr Holloway: The way you
guys are talking about drumbeats, it strikes me that you are talking
yourselves into the decision that you are going to make eventually.
Are you?
Lord Drayson: Not at all. What
we are doing is describing the situation as it exists in reality.
Q226 Mr Holloway: Well that is
a powerful dialectic to make the decision to build new ones then.
Lord Drayson: Not at all. What
we are saying is that if the decision is taken in the future to
replace the deterrent, if the decision is taken to replace the
deterrent, and if the decision is taken that the right basis for
that deterrent should be submarine-based, these are the implications
taking into account—
Q227 Mr Holloway: So if you decide
not to build a successor to Vanguard, what effect does it have
on your ability to build, construct, service and operate the rest
of your submarines?
Lord Drayson: We would have to
look then at the requirement which we would need in terms of the
attack submarines, the ones which are conventionally armed and
the frequency of build of those and we would still be faced with
the need to maintain this capability. We could not have the option
of stopping building submarines and expecting there to be a submarine
building industry ten years down the track and we cannot expect,
it is not realistic to expect, that that submarine industry could
be re-built again. Therefore, if you want to have the option in
the future to build submarines, conventionally armed or not, you
have to provide a minimum number of orders and we judge that minimum
number to be a drumbeat of about 22 months.
Q228 Mr Holloway: That is a very
powerful forward-moving argument from both the Navy and from industry
to help the Prime Minister, to ease him into making "the
correct decision", in inverted commas.
Lord Drayson: I can understand
why you are making that point but I do not believe it to be fair
because this fundamental point also applies to other sectors within
the defence industry. Some sectors in the defence industry have
customers apart from the Ministry of Defence, because the technology
can be used in civilian applications, say communications, or they
have customers apart from the Ministry of Defence because they
have export markets. In the particular case of submarines neither
of those applies. We then add on the fact that a submarine is
without doubt the most complex example of a piece of defence equipment.
The level of complexity is to such a degree greater than other
systems that it then adds to the challenge which you have. It
is because of the particular aspects which are prevalent in the
submarine area, but there are other markets within the defence
capability where the same applies, that if the Ministry of Defence
does not maintain a certain level of orders, then industry declines
and then eventually disappears and it is then not possible for
us to source that because we cannot source it elsewhere.
Q229 Mr Holloway: Just a final
observation then. It would seem to me that the decision as to
whether or not renew our nuclear deterrent is in small part considerably
influenced by these arguments and not the pure argument as to
whether or not we have one.
Lord Drayson: The first question
that needs to be considered and then answered relates to the defence
need; answering that question first. Then the other issues arise
out of that once that decision has been taken as to what the defence
need is.
Mr Holloway: So there will be no surprises
when the announcement is made.
Q230 Mr Borrow: If it is felt
that there is not a defence need for a nuclear-powered submarine
to deliver nuclear weapons, the MoD would be faced with the option
of allowing the industry to die or placing orders for nuclear-powered
submarines that do not carry nuclear weapons, irrespective of
the defence requirement for those particular submarines and therefore
in the cost equation, should we decide to pursue a nuclear weapon
option in looking at different platforms, the fact that we would
have to spend a lot of money to maintain the nuclear-powered submarine
base would mean that there would have to be a very, very strong
argument indeed in favour of looking at acquiring any other platform
to use as a base for nuclear weapons. Would I be right in reaching
that conclusion?
Lord Drayson: If the decision
were taken that there was no defence need for nuclear submarines
carrying nuclear weapons, then the next question relating to the
submarine industry is whether there is a defence need to have
nuclear submarines carrying conventional weapons. If the answer
to that is yes, then there is a minimum number of submarines which
needs to be built in order to maintain that capability. So yes,
on that basis you then have to look at the implications in terms
of the frequency in the same way. That does apply to other areas
of defence where you have these very specific capabilities for
which we are the only customer.
Q231 Mr Borrow: Following on from
the fact that this is an industry for which the MoD is the only
customer with a small order book and therefore a very small number
of companies involved, one key thing being worked on now, and
which is mentioned in the defence industrial strategy, is greater
coordination and collaboration between the different companies.
How do you think that collaboration and reconstruction are going?
Lord Drayson: It is a mixed picture.
On the one hand, there are great signs that progress is being
made. When we look at the productivity which is being achieved,
for example at Barrow, the improvements which we are seeing in
the Astute build, the news is good. When we look at the discussions
that are now going on within industry, for example between those
yards, and the expertise involved in the design and development
of submarines and those yards that are involved in the maintenance
and upkeep of submarines, a really good collaboration is starting
to develop and what we want to do is to see that accelerated.
We have expertise at both ends, what we want to do is make sure
that we learn the lessons to design maintainability into our submarines
and that is about good communications between the two, so that
is on the positive side. On the negative side, we have seen some
things recently which have worried us, for example relating to
Devonport dockyard and the decision which has recently been taken
by KBR which does worry us about the level of engagement which
is taking place and this is something which we are very focused
on within the Ministry of Defence.
Q232 Mr Borrow: Would you have
in your own mind a degree of collaboration and cooperation that
would be pre-requisite for placing orders for nuclear-powered
submarines to replace the Vanguard class?
Lord Drayson: We have within the
Ministry of Defence a clear strategy, which we call the Maritime
Industrial Strategy as part of the Defence Industrial Strategy,
how we wish to see industry evolve both in terms of submarines
and in surface ships. We have said very clearly that we do expect
industry to get on with that evolution, to improve productivity,
to deliver an affordable ship and submarine programme and we do
expect industry to deliver on that. We have seen some good progress
in certain areas; I would say the progress which is being made
on the aircraft carrier is an example. However, to answer your
question directly, there is an inter-relationship between the
affordability and the plan to implement a submarine build programme
should a decision be taken and the industry construct that would
be needed to do it in the most efficient way. Broadly speaking,
that means integration of design with upgrade and maintenance
to remove overlap and to make the best use of the skills and the
know-how which we have in this country. One of the things we need
to recognise is that this is an industry which is considerably
smaller than the industry which existed at the time of the Vanguard
class design and start of that process and therefore we really
do need to see that industry makes these changes to ensure that
we have the greatest confidence in the development and build of
our future submarines. I would say that it is a mixed picture:
some areas offer real positive signs and some where we do think
the industry needs to go further.
Mr Gould: The real constitution
we are trying to get is, rather than a set of three or four companies
getting their benefit, their profit and their return from a piece
of the industry, building the reactor, building the submarines
but not maintaining the submarine, only maintaining the submarine,
that actually the industry gets its benefit, as we are achieving
with the carrier alliance, from the overall performance of the
enterprise, so they pool resource, pool skills and they have the
same intent in terms of designing for maintainability and ultimately
contracting for availability. If you contract for availability,
then you have to have an industrial enterprise that can take some
of the availability risk from us into the enterprise, which means
they have to pool design, maintenance and engineering together
into a single enterprise. What the commercial construct for that
is, is of less concern to me than the management behaviour which
you get by having that contracting pattern.
Q233 Mr Borrow: What encouragement
and incentive is the MoD giving to the companies to achieve what
you want them to achieve?
Lord Drayson: It comes primarily
from the fact that we are the customer, we determine by the way
in which we behave the way that industry responds. You get the
suppliers you deserve, depending on how you behave as a customer
and for us, the incentive comes from us making it clear to industry
that there is a connection between the order that we place and
the investments and the decisions that they make, so we reinforce
positive behaviour. Secondly, having the commercial incentive,
so we have the level in terms of the orders themselves but also
in the structure of the contract. The breakthrough which the Ministry
of Defence has made in these sectors where there is this clear
interdependence between the supplier and the customer is coming
up with new contract structures which incentivise industry to
perform, in other words to deliver equipment, such as a submarine,
to time and to cost and if the industry construct does that, it
makes an enhanced profit. So you reward through performance incentives
for good delivery, that good delivery on cost and time comes from
investment in skills and so forth and that is the incentive that
you bring.
Q234 Linda Gilroy: I would remind
members that I have a declared interest in respect of DML in Devonport.
Obviously I have had some concerns about the events of the past
week, I am not quite sure how clear other members of this Committee
will be about what has been happening there Minister, so may I
invite you to flesh out a little bit more what you have said about
having concerns about the recent behaviour of KBR and the extent
to which that reflects on what you have just been describing as
to how you achieve the positive behaviour and culture that you
have been striving for.
Lord Drayson: What I have been
talking about is this recognition of an interdependence between
the supply chain, the industry and the Ministry of Defence and
in the case of Devonport, Devonport is clearly a strategic asset
of the United Kingdom, it is responsible for the re-fuelling of
our existing Vanguard class of submarines, the maintenance therefore
of the UK's nuclear deterrent and I am concerned at the way that
the spin-off of KBR, who are part owners of the DML facility has
been undertaken recently. The fact is that we expressed to the
company, to KBR, our concern that, given the performance of KBR
as part of Halliburton overall and, given the importance of DML
to the UK in terms of nuclear deterrent, we needed to assure ourselves
in the Ministry of Defence that any changes in the capital structure
had no negative impact on the MoD and the nuclear deterrent. We
were assured by the company that we would be provided with the
financial information to enable us to reach that conclusion before
the company proceeded with the IPO and the start of this spin-off
process. I was very disappointed to see that the company did not
provide that information and has gone ahead with the IPO process.
This has significantly undermined our confidence in the company
and this was clearly put to the management of the company yesterday.
We need to expedite this financial review, but there are serious
issues that need to be resolved to the satisfaction of the Ministry
of Defence because this is very important to the national security
interest.
Q235 Linda Gilroy: From the point
of view of how this has been perceived locally, where there has
obviously been intense interest, they are behaving like an absentee
landlord. I wonder whether you could just say a bit more about
what the implications of that are for achieving the sort of investment
that might be required in the dockyard to meet the continuing
safety cases etc.
Lord Drayson: This is at the heart
of the information which we require to see. This is the financial
information which we asked to see before the company went ahead
with the IPO process. We do need to see this information: we have
not seen it yet. It is very important that we do see it, because
we need to assure ourselves that there is the capital structure
to ensure that the investment is provided to maintain this very
important facility in the future.
Q236 Linda Gilroy: Could you finally
tell the Committee what options are open to MoD, to the Government,
if you do not receive those reassurances and what opportunities
there may be in relation to the consolidation of the industry
and what skills base?
Lord Drayson: We have a number
of options. We have a special share in the company which gives
us significant rights. We are reviewing those options at present.
I must say that we take this very seriously indeed and we are
looking at this issue right now; we have taken no decisions at
the moment. We have pressed the company and made it absolutely
clear that we require this information urgently and we are reviewing
the position.
Q237 Mr Holloway: I hate to go
back but I am not quite clear on the question that one of my colleagues
asked about the cost of French or US submarines. Would they be
more expensive because obviously you have the very high social
costs of the skilled workforce that we have here already? Would
it be that you still have significant expense in terms of servicing
and maintaining foreign boats if you bought them? Why is it that
off-the-shelf stuff would be so much more expensive? What is the
reason?
Lord Drayson: It would be wrong
to characterise a nuclear submarine as something which is off
the shelf.
Q238 Mr Holloway: We have some
common parts at the moment in terms of the re-entry vehicle and
so on, so—
Lord Drayson: I am not clear about
the question.
Q239 Mr Holloway: All I am saying
is that there cannot be a gigantic difference, if we accept that
we are going to have a nuclear submarine, between one made in
France and one made in the United States. How is it that a US
one or a French one would necessarily be so much more expensive?
That is what I am trying to get at.
Lord Drayson: Do you want to talk
about the differences?
Rear Admiral Mathews: We need
to be careful that we are comparing apples with apples rather
than apples with pears. For instance, the Americans design their
submarines for a longer life and they have a more expensive core
because it is designed for a longer life. They have gone down
a different technology route to get there and we have not invested
in that technology. So there are fundamental differences between
the US submarine programme and our own. I am afraid I cannot comment
on the French programme.
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