Select Committee on Defence Minutes of Evidence


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


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 27 March 2008