Examination of Witnesses (Questions 100-119)
MR BILL
JEFFREY CB AND
MR TREVOR
WOOLLEY CB
28 NOVEMBER 2007
Q100 Mr Jones: When you came before
us in 2006 you said that one of your priorities was to try to
get to grips with the whole question of how procurement and acquiring
equipment works. Obviously we have made great strikes with Lord
Drayson but my fear is now that he has gone you lot are going
to get back in charge of it and get back into bad habits. What
have you actually learned in terms of making sure that in-service
dates are met and also that the taxpayer is not going to be landed
with these huge sums of money?
Mr Jeffrey: First of all I think
we have made progress in the last few years. I think there are
always examples of project management that are less good than
I would certainly wish. I think the merger of the DPA and the
DLO has produced an organisation which is becoming more capable
and is beginning to give effect to the through life capability
of management principles that Lord Drayson did much to advance
when he was our minister. I am optimistic that we can carry on
improving in this area. It turns a great deal on the issue that
we were discussing earlier, the issue of skills. We have some
very highly skilled staff involved in this but we need to make
sure that they are all at that level. It is certainly something
we are giving attention to.
Q101 Mr Jones: One thing that Lord
Drayson brought into the equation was the fact that he was prepared
to crack the whip and actually make sure that things were delivered
on time and deadlines were met. It did not bode very well when
we were told last week by the new minister that the next phase
of the Defence Industrial Strategy would be delayed until the
new year. Who is going to be cracking that whip in terms of making
sure that these deadlines and things are actually met?
Mr Jeffrey: Lord Drayson was a
very effective minister and I took public opportunities on my
rare occasions of venturing into the public to say, perhaps quite
unusually, that that was my view. I felt that it was up to us
as a department to ensure that it was not just him and that we
were actively promoting the agenda that he was, that it was a
collective effort. We have a new minister who is extremely capable
and experienced and what we have to do with her is to keep this
momentum up and to keep improving things because it is too important
not to.
Q102 Mr Jones: We are watching you
very closely.
Mr Jeffrey: I am sure you are.
Q103 Mr Jones: Could I come onto
the issue that was raised by Mr Jenkins earlier about the Guided
Launch Rocket System. To achieve the saving you actually reduced
the number of equipments you actually bought. Has this technique
been used in other places to actually make sure it is coming in
budget by ordering less?
Mr Woolley: It is the case that
we looked to balance cost, time and capability and in order to
ensure that we stay within budget it is right that we should look
at areas where we can compromise on the overall level of capability
to stay within the budget.
Q104 Mr Jones: When you say "compromise
capability" what do you mean by that?
Mr Woolley: In the cases you raised
the compromise we are talking about is that we buy fewer than
we had previously planned, which was the case in regards to the
GMLRS.
Q105 Mr Jones: Why did you buy less?
Mr Woolley: We bought less because
we were faced with the decision as to whether to stay within the
financial envelope—the budget that we had for that project—in
which case we had to find savings in capability from within that
project, or to exceed the budget in which case we would have to
have made savings elsewhere.
Q106 Mr Jones: That is very clear
but does that not then leave you a capability gap in terms of
the Armed Forces?
Mr Woolley: We are always having
to make judgments about risks and capability. We could never possibly,
under any conceivable defence budget, be able to eliminate all
the risks to capability that there are. We are constantly having
to make that judgment about where to bear the risk, what are the
greater risks, what are the lesser risks?
Q107 Mr Jones: Are the generals saying
to you that therefore they do not have the capability when required?
The new stage we have now is that it is yourselves and the politicians—big,
bad MOD—versus these wonderful
generals who are the actors in the play but do not really seem
to have any role in it. What are they actually saying to you?
Mr Jeffrey: I would dispute that
account, if I may.
Q108 Mr Jones: I am not saying that
I agree with it but that is the public perception which is being
put forward.
Mr Jeffrey: Within the department
there is a very close working relationship. I think the point
that Trevor Woolley is making is that it is inherent in our business
that there is not a single answer to every capability requirement
and you have to judge the extent to which you insure against risk
by spending more. Inevitably we have to make judgments about just
how much within a particular financial envelope we can afford.
Q109 Mr Jones: Therefore the original
number you were going to buy was wrong, was it?
Mr Woolley: The original number
we were going to buy was not wrong but it is just that when we
were in a position where we had to make a judgment as to where
we were going to take more risk, this seemed to be the area where
it was most appropriate to have more risk.
Q110 Mr Jones: What is the capability
gap in military terms by not buying these rocket systems?
Mr Woolley: There is a potential
risk that in certain circumstances we would not have as many available
as we would need potentially, but the judgment we make is that
that is a very unlikely circumstance to arise.
Q111 Mr Jones: That judgment is obviously
a ministerial judgment, a Civil Service judgment and a military
judgment as well.
Mr Jeffrey: Yes.
Mr Woolley: The lead area of the
department for making these judgments is what we call the Equipment
Capability Customer which is an organisation led by a three star
military officer.
Q112 Robert Key: The current tempo
of operations is shortening the planned lives of equipment; I
do not think there can be any doubt about that. How much is it
going to cost to put that right? Will that cost fall on the Treasury
or on the defence budget?
Mr Jeffrey: I agree with the basic
premise of the question. I cannot give a figure for how much it
would cost to put right; that is something we will need to build
into our future equipment programme planning. In terms of what
the Treasury will cover, Trevor Woolley might want to remind me
of the detail but essentially if things are destroyed in theatre
then the reserve funds replacements in theatre. If things wear
out and need to be replaced later then one is essentially talking
about using the defence budget.
Q113 Robert Key: I used to think
that the policy was that the Treasury would fully fund the cost
of Urgent Operational Requirements but last week in another place
Baroness Taylor said this: "The new approach with the Treasury
means that in the three years of the comprehensive spending review
the reserve will continue to pay all additional costs of operations
up front and will pay outright for UORs up to a mutually agreed
total. Beyond that the MOD and
the Treasury will split the cost fifty-fifty, with the MOD
having to repay its share two years later by which time there
could have been adjustments in the programme." This sounds
to me like a change of policy. Am I right?
Mr Jeffrey: It is a different
approach from the one that was being taken before.
Q114 Chairman: So that is a yes.
Mr Jeffrey: It involves principally
an agreement between the two departments about what is a best
estimate and what we would spend on UORs. There is, without equivocation,
an expectation that that will be met from the reserve, as will
any other additional costs on top of that within the year of spend.
What is new is that there is an understanding that anything in
excess of what we expected would be funded longer term fifty-fifty
because there will be an opportunity over the succeeding few years
for us to adjust the equipment programme. What one needs to bear
in mind is that we are frequently deploying as UORs equipments
that we might well have been planning to purchase later. [7]
Q115 Robert Key: The other bit of
this new policy is, as the minister said in the other place, "The
Ministry of Defence will have to repay its share" (that is
the fifty-fifty arrangement) "two years later". In fact
this has completely destroyed the old understanding of the Treasury
picking up the cost of UORs; now the Ministry of Defence is having
to pay the Treasury back. Is that right?
Mr Jeffrey: Within the spending
review period that we are about to enter that is the subject of
the last settlement, there is provision in 2010-11 of £200
million which the Treasury has provided to fund us to meet anything
of that sort and thereby to ensure that over the whole CSR period
these new arrangements are cost neutral.
Robert Key: Which is exactly what the
minister said, I have it written down here. However, I do think
that this new policy needs some thought
Q116 Willie Rennie: Is it my understanding
that not only does the MOD have
to cover the through life costs of the UORs—the extra equipment—but
they are now having to pay the actual upfront costs as well?
Mr Jeffrey: Only under the conditions
that I described, in other words what we expect to spend by way
of UORs will be funded from the reserve. If that is exceeded then
on a basis agreed with the Treasury and a couple of years later—and
funded a couple of years later for that purpose—there will
be a fifty-fifty split. It is a little complicated, I acknowledge,
but it is not that suddenly we have stopped having access to the
reserve for those operational requirements, far from it.
Q117 Willie Rennie: There is no recognition
from the Treasury; through life costs are part and parcel of purchasing.
Mr Jeffrey: As I said earlier,
the position is that the reserve meets the costs of replacing
or repairing equipment damaged or destroyed in theatre and for
use in theatre. That does cover a lot of our expenditure because,
as Mr Key remarked, we are losing things. In that sense we access
the reserve unhesitatingly. It is if you look longer term that
there is an extent to which our stock of some equipment will be
deteriorating as a consequence of these operations.
Mr Woolley: The running costs
of UORs on operations are provided from the reserve.
Q118 Mr Jones: How much to date has
the MOD refunded to the Treasury
for operations in Iraq and Afghanistan?
Mr Jeffrey: I am not aware of
anything.
Q119 Mr Jones: For equipment in Iraq
and Afghanistan. If you just had the system that Mr Key has talked
about you must have refunded the Treasury for monies spent on
equipment that has been purchased.
Mr Jeffrey: The announcement that
Mr Key referred to that Baroness Taylor made—indeed the
Secretary of State referred to it in the House on 12 November—was
entirely forward looking in sense in which it is now for us to
repay money to the reserve.
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