Examination of Witnesses (Questions 200-219)
MINISTRY OF DEFENCE, SHAREHOLDER EXECUTIVE & QUINTEQ
3 DECEMBER 2007
Q200 Mr Bacon: Is this not a bit of an omission on the part of the Treasury in its zeal to encourage qualifications by—
Ms Diggle: We are trying to make it a blanket requirement. We have not quite got there yet.
Q201 Mr Bacon: Does trying to make it a blanket qualification include Mr Woolley?
Ms Diggle: We are trying to get to 100%.
Mr Jeffrey: If I may make a comment, Mr Bacon, Mr Woolley in my view does a very good job as Finance Director.
Q202 Mr Bacon: I was not asking about the quality of the job he does.
Mr Jeffrey: But it is my intention that his successor should be financially qualified, as the policy requires.
Mr Bacon: Good; I am glad to hear it.
Q203 Chairman: I am grateful for those questions, Mr Bacon. Sir John, when I asked you that originally were you just trying to be deliberately disingenuous in answer to my question and pull the wool over my eyes?
Sir John Chisholm: I am sorry, Chairman. I am afraid I have not followed your point there. Which question were you referring to?
Q204 Chairman: I was asking you about your conversation with Lord Gilbert, and I asked you a direct question. We can read out the whole transcript again. I read it to you and Mr Bacon has read it to you. Lord Gilbert, the then Minister, said that you were not honest with him about your possible financial gain. I want to ask you the question again. What was the exact nature of your conversation with Lord Gilbert? Can I have the transcript? "One of the things that irritated me in was that never once in my presence did Sir John Chisholm indicate that he might have a conflict of interest or he was going privately to be enriched by what was going on". I have to ask you, and I do not want any answers about equity or investment; I just want a direct answer, is Lord Gilbert right in saying that on the Today programme? Yes or no?
Sir John Chisholm: He is not right, no.
Q205 Chairman: Why is he not right? He is lying, is he? He has made it up, has he?
Sir John Chisholm: Because at that stage there was no scheme or anything to discuss in terms of any kind of management equity.
Q206 Chairman: Are you telling us that when you were having these conversations with Lord Gilbert, and he might well have been naive about this, it had not crossed your mind that there might be a conflict of interest or that you were going to be privately enriched? Are you really suggesting that to us, that you discussed this with a responsible minister and it never crossed your mind?
Sir John Chisholm: Perhaps it would help, Chairman, if I just said a word or two about what the PPP proposal was then. Would that help?
Q207 Chairman: Yes, of course.
Sir John Chisholm: Okay, thanks. That came out of our 1997 Corporate Plan. At that stage the Agency, having done a reasonable job of getting itself into an efficient position, was suffering from the fact that, being a fully owned government entity, as it tried to deal with the decreasing business from the Ministry of Defence, the 40% downturn that the Report indicates, and as it tried to move into other businesses, its competitors complained about that and went to ministers because it was, obviously, differently financed and had a lot of non-competitive business, and that was clearly a problem, a very significant problem. The ways forward were either to continue the way we were, in which case it would be just a gentle downward slope and a waste of assets, or the other four options. One was to go all-out into the commercial, non-defence world. That looked like high risk. Another was to do what the DIC, the Defence Industrial Council, then recommended, which was essentially that the work should go to the defence industry and DERA should be downsized significantly to stay out of the defence industry's way. That would be enormously expensive for the Government, and of the two remaining options (this is 1997 we are talking about) one was what we call federated labs, where essentially our labs would be attached to universities rather like the Lincoln Labs in the United States. That was one option and we were quite attracted by that option and so that was one of our recommended options. The other was to pick up an idea—this was 1997, the new Labour Government had just arrived and there was something in their manifesto called "the third way". This is somewhere between public and private; that was the idea.
Q208 Chairman: So this is a triumph for the third way, is it?
Sir John Chisholm: And that is where the phrase "public private partnership" came from, and the notion at that time was that institutional equity would be injected into exactly the same organisation that we have at the moment.
Q209 Chairman: Yes, I understand that.
Sir John Chisholm: As you can see, there was no sense at that stage of the kind of privatisation which subsequently emerged in 2002/2003.
Q210 Chairman: Just because it is not a classic privatisation that had happened before, it was a new form, a third way, if you like, an injection of private equity money, you are the responsible official so when you go and advise ministers it is your duty surely to say to them, "I would rather somebody else was involved in negotiating all this because there is a real possibility that I might be involved in some sort of management buyout", or whatever else you want to call it. This would be the right way of doing it, would it not? You would stand back from it, would you not? That is what we cannot understand, I think.
Sir John Chisholm: Sir, if there had been the proposition of a management buyout—
Q211 Chairman: No, I expressed myself badly. I knew that you would immediately come back on me. I know it was not a management buyout, but what I am trying to get over to you is that here you had a minister you presumed was coming to this new. You should have stood back from it at that stage because it must have occurred to you that whatever you call it, whether you call it an injection of private equity or anything else, there was a real possibility there would be a conflict of interest and that you would benefit from this financially. Surely, in the traditions of our Civil Service, and we are about to celebrate 1,500 years in this Committee, and we celebrate the fact that we have an incorruptible Civil Service, is there no smidgeon of doubt in your mind that perhaps you acted wrongly at that stage?
Sir John Chisholm: There is not.
Q212 Chairman: That you did not act in the traditions of the traditional British Civil Service? There is no smidgeon of doubt in your mind?
Sir John Chisholm: No, there is not, sir. We were at far too early a stage and the proposition did not encompass that at that stage as a possibility.
Q213 Chairman: What about later ministers of defence procurement? When did Lord Gilbert leave?
Mr Woolley: 1998, I believe.
Q214 Chairman: This stage was carrying right on through 2002. At no stage did you say to ministers, "I am going to back out of this now because I might stand to be enriched personally"?
Mr Jeffrey: As I said earlier, Chairman, by that stage we had moved into the period that I described, where the advice to ministers was coming principally—
Q215 Chairman: At what stage did Sir John then stop giving any advice to ministers? What year was it, what month?
Mr Jeffrey: The principal advice to ministers on this issue throughout 2001-02 was coming from Mr Woolley's predecessor as Finance Director.
Q216 Chairman: At what stage did Sir John stop giving advice to ministers?
Mr Jeffrey: He remained involved in the process in the sense of contributing his views but the principal advice to ministers was—
Q217 Chairman: All right, so he was giving his advice to ministers? You have just said that. Till what date was he giving his advice to ministers?
Mr Jeffrey: Sir John?
Q218 Chairman: Mr Jeffrey, I asked you. Why can you not answer?
Mr Jeffrey: If what you wish is a date, Chairman, then I had better—
Q219 Chairman: I do not understand what you are saying because it is now clear to me that you first of all a couple of minutes ago suggested to me that at an early stage he withdrew from all this. You are now saying that he was giving advice to ministers throughout this process.
Mr Jeffrey: What I am saying is that the thing was set up in such a way that the principal advice to ministers and the submissions to ministers about the sale to Carlyle were coming from the Finance Director and the team that reported to ministers.
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