Examination of Witnesses (Questions 140-159)
GENERAL SIR
KEVIN O'DONOGHUE
KCB CBE, DAVID GOULD
CB AND LIEUTENANT
GENERAL DICK
APPLEGATE OBE
29 JANUARY 2008
Q140 Mr Hancock: Does it suit the
MoD for this contract not to be let now?
General Sir Kevin O'Donoghue:
No.
Q141 Mr Hancock: What is the impasse
about?
General Sir Kevin O'Donoghue:
We do not know.
Q142 Chairman: General O'Donoghue,
I am afraid we do not understand these answers. Can you help us?
General Sir Kevin O'Donoghue:
There is a commercial process to go through and it has taken a
number of months up until now. The side letter to the joint venture
was signed after Christmas, so that is ready to go. Debate is
being had between our commercial staff in the main building and
the alliance and joint venture.
Q143 Mr Jenkin: Is it possible that
it is simply being held up because the cash is not there, or delaying
the order will help the cash flow of the Ministry of Defence in
the short term?
General Sir Kevin O'Donoghue:
I genuinely do not know. The planning round is not in my hands.
What we and the IPTs are doing in the planning round is to provide
much more detailed costs than we have ever been able to do from
the centre. That is where I sit at the moment. I am not closely
involved in the planning round. I am closely involved in providing
costs and options but not the planning round.
Q144 Robert Key: Mr Gould explained
that one of the reasons for increases in cost was the inevitable
rise in the cost of labour and materials, but in the memorandum
that the Ministry of Defence has provided to the Committee for
this inquiry it is pointed out in the table that the original
main gate approval cost in 2005 was £3.9 billion and the
forecast this year, which I note is not restricted, is £3.9
billion. There is no increase in those years. Is this part of
the bone of contention? Is this not fairyland?
Mr Gould: That is because the
timescale for building the ships has not changed between those
two things, so the labour and materials bills does not change.
The fact of the matter is that as we speak the joint venture has
not been formed and we do not have that body with whom we can
contract.
Q145 Mr Jenkin: Does that require
Ministry of Defence approval?
Mr Gould: It does require approval.
Q146 Mr Jenkin: Do you think that
may be the problem?
Mr Gould: I do not believe that
is the problem. We have been encouraging them to form a joint
venture, so not to approve it would be pretty perverse. What they
have been asking for is a side letter from us which gives them
some comfort, because obviously the joint venture in effect is
a delayed sale. Therefore, if BAE Systems guarantees a price it
needs some statement about future work. It has had that letter;
it has been signed and sent to them, so there should now be no
impediment to pretty quick progress on the formation of the venture
and contracting for the ships.
Q147 Mr Jenkin: It sounds like a
stand off.
Mr Gould: No, it is not.
Q148 Mr Hancock: It is not unreasonable
to ask when you would reasonably expect to be able to tell industry
that this is now to be signed. The way this contract has been
handled and the to-ing an fro-ing is not a good example of the
new regime and I think industry will look rather reluctantly at
the way this been handled for good news in the future?
Mr Gould: To come back to your
original question about how we shall not have on the carriers
what happened on the Type 45, I think this is a pretty good example.
We have spent quite a long time and in excess of £400 million
to make sure that with the carrier alliance we have a common understanding
and expectation as to the design, what is involved in manufacturing
it and what are the industrial arrangements for it so that when
looking at the £3.9 billion and the incentive arrangements—because
we hope to do better than that as we go through the project—both
sides understand that this is a realistic possibility and it is
not wishful thinking. We have already ordered some of the long-lead
materials for the ships. For example, the steel has already been
ordered from Corus because it is a good thing to do in the current
state of the market. We are not standing still; we are making
progress.
Q149 Chairman: General O'Donoghue
said in answer to Bernard Jenkin, who asked if it was possible
this had arisen because you did not have the money, that he did
not know.
General Sir Kevin O'Donoghue:
You are absolutely correct.
Q150 Chairman: Would you give the
same answer?
Mr Gould: Is it possible because
we do not have the money? Clearly, I would not give the answer
that we do not have the money, but the fact is that we are going
through a review of the programme of the nature we talked about
earlier. The Chairman specifically asked whether this was as serious
as we had ever known it at least in recent years. To that I would
say yes, although my memory goes back to the 1970s as well and
I can think of times when maybe it was worse. That is not an atmosphere
in which it is easy to take big decisions on commitments, but
when the Defence Management Board looked at this proposal it said
that it was a good one.
Mr Hancock: The simple question is: when
do you expect to be in a position to get the contract signed?
Mr Gould, what is your best guess based on your 30 years' experience
of the good and bad times in the MoD?
Q151 Chairman: Will you get it through
before you go?
Mr Gould: I would be very disappointed
if I did not.
Q152 Chairman: Do you think you will?
Mr Gould: Yes.
Q153 Mr Holloway: In that case this
is not a convenient stand off whereby until you do a contract
they cannot legally do a joint venture?
Mr Gould: No. They can legally
do a joint venture today if they can. I would expect this to be
fairly imminent. When I go is fairly well known, so that gives
you the timescale.[4]
Q154 Mr Jenkin: What is the target
number of Astutes?
Mr Gould: Seven.
Q155 Mr Jenkin: But like everything
else that is presumably in the melting pot? I am not trying to
catch you out. It is not a special category?
Mr Gould: It is not.
Q156 Mr Jenkins: I do not understand
the phrase "in the melting pot". I understand "re-profiling".
By this plan I anticipate that somebody will sit down and look
at all the projects and re-profile them, for example something
should have greater priority because we need it or something else
can be pushed back because it is not needed at the present time.
The outcome will be the same level of expenditure but a re-ordering
of the projects within that expenditure. That kind of re-profiling
is the subject of an annual assessment in any good company. Is
that what you see?
General Sir Kevin O'Donoghue:
That is exactly where we are at the moment and we are coming to
the end of it.
Q157 Mr Jenkins: Therefore, it is
not a matter of everything sitting on the table and it being decided
what is put into the pot and what is pulled out of it; it is more
sophisticated than that?
General Sir Kevin O'Donoghue:
It is an analysis of the all the programmes to see whether the
profile of the programming is right. That is why I cannot tell
you why; we are where we are.
Q158 Chairman: What is the target
number of joint strike fighters?
General Sir Kevin O'Donoghue:
It depends on what they cost.
Q159 Chairman: Are you happy with
the programme at the moment?
General Sir Kevin O'Donoghue:
I think so. The first CTOL version of the Joint Strike Fighter,
not the STOVL version, has flown. We do not yet know the unit
or support costs, which is why I answered the question you first
asked the way I did. It would be foolish of me to suggest a number
without knowing the price.
4 See Ev 40. Back
| 
