Examination of Witnesses (Questions 1-19)
MINISTRY OF
DEFENCE
17 MARCH 2008
Q1 Chairman: We are looking at the Major
Projects Report 2007, which looks at the Ministry of Defence's
procurement record in the year ended March 2007. We welcome back
Sir Bill Jeffrey, General Sir Kevin O'Donoghue and Lieutenant
General Andrew Figgures. You are all very welcome to what is obviously
a very important annual session that we have on procurement in
the Ministry of Defence. You will recall, Sir Bill, that we had
some tough things to say in our last Report about project spend
and transfer to a different budget line, and we might look at
this at the start of this session, if you do not mind, by looking
at page 13, figure 5 of the Comptroller's Report. It tells us
that in 2006-07 £609 million was transferred to be managed
either corporately or by other projects and budget-holders. We
see down at the bottom there that the best part of £1 billion
has been transferred to different budget lines. Why have so many
projects dealt with these problems simply by transferring across
rather than addressing the fundamental concerns that this Committee
has been raising again and again with the Ministry of Defence
over many years?
Sir Bill Jeffrey: The first thing
to say, Chairman, is that we are trying to address these fundamental
concerns, and I hope we will come to that in the course of this
session as well. On the issue of transferring costs from one budget
to another, it is something about which we need to make a judgment
when we are compiling a report of this sort, and there is always
a judgment to be made about where costs most appropriately lie.
All I can say is that in the movements of money from one side
of the ledger to the other, as it were, that are revealed by this
Report, we are very much in agreement with the National Audit
Office. We would not pretend for a moment that they all constitute
savings—far from it. In many cases we have to find other
ways of meeting this expenditure. Principally, what you see in
table 5 is a reflection of what in accounting terms seems to us,
and the National Audit Office, is the right place to allocate
these—
Q2 Chairman: I am very anxious that
we should not accept this argument as simply an accountancy issue.
There are definite issues that have to be tackled on the ground.
If £1 billion worth of costs is not attributed, that is £1
billion of other things you cannot do. In the Treasury minute
you gave us last year we focused on this very point, and you told
us in that Treasury response to our Major Projects Report 2006
that you would take steps to identify the impact on the other
areas of defence where costs were transferred out of the Major
Projects Report. I would like to know what concrete progress you
have made on this, Sir Bill, since you accepted our recommendation—our
recommendation, which you accepted.
Sir Bill Jeffrey: Certainly, through
our planning process, which is going on now in relation to 2008,
we are constantly looking at the programme. We have had to identify
right across the programme savings that we can make and ways in
which the impact of this can be managed within the budget that
we have, so it is an ongoing process.
Q3 Chairman: That is a complete non-answer.
What I would like you to tell me is this. We have £1 billion
of extra costs that are not attributed. What has been cut; what
has not been done? Can you tell me?
Sir Bill Jeffrey: I cannot at
this stage, Chairman.
Q4 Chairman: This is not satisfactory
because we made this recommendation a long time ago and you accepted
it; and what you are saying, frankly, is that you are still working
on it. We are talking about £1 billion worth of defence procurement
that has been transferred between budget lines. We would like
to know the actual impact of this on other areas of your spending
or on a particular project. You must know what is going on! General
Figgures, can you help us, or General O'Donoghue?
Lieutenant General Andrew Figgures:
Chairman, if we take a specific example, for instance the Guided
Multiple Launch Rocket System (GMLRS), which we spoke about last
year; this provides a capability for precision attack at range
that also our Indirect Fire Precision Attack Programme (IFPAP)
addresses, although we might, through the IFPA programme, address
it in a different way or have a complementary capability such
as a loitering munition. What we have here is a rocket that fires
70 kilometres and can hit a target with great accuracy; we can
also fire a munition that can stay in the air, and again address
a target with great accuracy. We are now carrying out work, as
part of the assessment phase of the Indirect Fire Precision Attack
Programme to see what the balance between those two munitions
should be in order to provide the necessary capability. So we
are preventing overlap, excessive redundancy—although in
all capabilities one requires some redundancy—and we have
grouped the money as part of an overall capability package. It
could be that we do save some money once we get to make our proposition
for main gate and the final investment decision.
Q5 Chairman: That is a specific project.
Lieutenant General Andrew Figgures:
Yes.
Q6 Chairman: There may be a justification
for it and it is very easy for you to home in on one specific
project, but I am not sure that you have answered the generic
question that I put to Sir Bill. If Sir Bill cannot answer it
now, I am very happy to accept a note when you have had the time
...
Sir Bill Jeffrey: I will offer
it, Chairman, but can I make two points? The first is that the
specific project that General Figgures refers to is an example
of a more general case, which is that some of these changes of
classification do not involve increased expenditure; they are
simply judgments—and the Guided Multiple Launch Rocket Programme
is a good example—of what is the most sensible place to
allocate the expenditure. Some do reflect pressures on our costs.
We had the spending review settlement last summer and we have
since then been working on the whole programme through our planning
round to assess how best to meet the pressures that the spending
review 2007 left us with. I will happily provide the Committee
with a note[1]
Q7 Chairman: Thank you very much, Sir
Bill. If we look at figure 1, as a useful aide memoire to the
Major Project Report summary of post main gate projects- let us
look at Nimrod, shall we? This is now £3.5 billion over budget,
seven and a half years late: is it still good value for money?
Sir Bill Jeffrey: It is certainly
a project that, if you look back into the past, has had a very
difficult history. I think we feel it is still an important capability.
It provides maritime patrol anti-surface warfare, reconnaissance,
search and rescue capability—
Q8 Chairman: I am sure its capabilities
are useful. It is seven and a half years late. It is based on
a Comet airframe that is half a century old. You have reduced
numbers from 21 to 12 and it is costing £3.5 billion and
seven and a half years late: I do not doubt that its good capability;
what I doubt is that it is good value for money. We are not a
defence committee; we are a value for money committee.
Sir Bill Jeffrey: I think a judgment
has to be made at the end of this, and the value for money which
it represents. At the stage that we are at now, with the major
discussions with BAE Systems a year or so in the past—we
now have a settled programme which we are physically implementing
because we have reached the point in it where it is more sensible
to deliver the aircraft.
Q9 Chairman: We will come back to
that later if people wish to ask more questions about Nimrod.
Let us look now at the new armoured fighting vehicle, which is
mentioned on page 178 in volume 2—it is in there because
it is in its early stages, I think. Obviously, there is an overriding
operational need for this kind of capability, but can you tell
us why it is taking so long to meet this need?
Sir Bill Jeffrey: This is the
so-called FRES project.
Q10 Chairman: It starts on page 177,
the Future Rapid Effect System.
Sir Bill Jeffrey: This is a project
which will, in time, produce a new generation of armoured fighting
vehicles for the Army. It has taken a while. The concept phase
was some years ago, which started in 2001, and took, we would
concede, longer than it should. It has now been moving substantially
more rapidly in the last few years. We have selected a so-called
"systems of systems integrator" to integrate the armoured
vehicles into all the technology that will surround them. We are
well through identifying a utility vehicle design and we are in
the process of selecting a utility vehicle integrator.
Q11 Chairman: Why has it taken so
long to provide an urgent operational need?
Lieutenant General Andrew Figgures:
If I may, Mr Chairman, there are two aspects to it. The immediate
urgent operational need, I believe we have met through a number
of urgent operational requirements, not least the Mastiff, seen
in service, Ridgeback, and the upgrading of the 430 series, which
has provided us with the necessary capability to conduct operations
today and provide the necessary level of survivability to our
soldiers both in Iraq and Afghanistan. The Future Rapid Effect
System is both a replacement programme and a means of enabling
the Army to deploy more rapidly in support of its focused intervention
operations and peace-keeping. Why has it taken so long? Since
we started looking at the Future Rapid Effect System, the operational
context in which we have been operating has changed significantly,
not least the development—I think we have noted before both
in this Committee and others how the nature of improvised explosive
devices, off-route mines, have advanced such that the levels of
protection that we might have anticipated in 2002 and early 2003
we have had to upgrade. As a consequence, we have had to develop
the requirement for this particular family of vehicles, and I
think it would have been inappropriate to have forced into service
a vehicle that was incapable of providing the necessary levels
of survival for our soldiers. So whilst you may say that it has
taken us some time, it is a bit like Abraham Lincoln and cutting
down the tree: if I had six hours to cut down a tree, I would
spend five hours sharpening the axe so that at least I did it
in the timeframe. Previously we said that de-risking the requirement
and de-risking the solution pays dividends in the longer term.
Q12 Chairman: That seems a very fair
answer. Can we ask you now about the aircraft carrier: when will
the announcement be made as to when the contract will be placed?
Sir Bill Jeffrey: The best answer
I can give to that, Chairman, is as soon as possible.
Q13 Chairman: That is not a very
satisfactory answer because we know that by July of this year
agreement was reached, was it not? We know that everything is
in place. All that is not in place is that your Treasury masters
have not yet given you the money. This has been delayed and delayed
and delayed, and you are still not in a position to tell this
Committee when the contract will be placed.
Sir Bill Jeffrey: The discussions
are still going on with the carrier alliance and within Government.
I think we are getting close to the point where the contract will
be placed.
Q14 Chairman: Weeks, days, months,
years?
Sir Bill Jeffrey: Just at the
moment these are continuing discussions and it is better for me
not to try to put a date on it.
Q15 Chairman: We have had a memorandum
from you on the joint venture with BAE and Vosper Thorneycroft,
have we not? Our whole shipbuilding capability depends on this
aircraft carrier contract, does it not? Are you not endangering
the future of our shipbuilding industry by delaying this announcement?
Sir Bill Jeffrey: We certainly
need to make this announcement as early as we can because it will
be in the interests of the joint venture and indeed of us as customers
that the industry should have the confidence that will enable
them to move ahead and form the joint venture.
Q16 Chairman: So you accept the importance
of this, and the announcement is imminent, is it?
Sir Bill Jeffrey: I would not
use the word "imminent" myself, Chairman, but—
Q17 Chairman: When we get asked to
vote on our Blackberries for a division, the division is either
imminent or shortly—is yours a shortly or imminent announcement?
Sir Bill Jeffrey: More shortly
than imminent.
Q18 Chairman: That is probably the
best we are going to get. Paragraph 2.15 is quite an important
little paragraph, there, buried—if I can find it: "Currently
it is difficult for the Department to assess whether it is getting
best value for money for Defence as a whole through the Defence
Industrial Strategy". When are we going to get this in place
so that we are getting value for money to sustain the shipbuilding
industry?
Sir Bill Jeffrey: I think we have
made quite significant progress in that direction in the last
year or so, because if you look back to the point rather more
than two years ago when the Defence Industrial Strategy was
published, we knew then and the industry knew in their hearts
that there was an over provision in the defence shipbuilding industry.
Over a period we have tried to influence them—and in the
end these are judgments that only the industry itself can make—towards
restructuring. The moves towards the joint venture, the establishment
of the Babcock enterprise in the South West—we are moving
towards a manifestly more affordable maritime sector, and that
will in time, because there is quite a bit of business around
short-term at least and short term in this business means over
quite a number of years, will provide better value for money for
us.
Q19 Chairman: The Astute Programme
was also dealt with in the Treasury Minute, PAC conclusion number
4, and we have had all sorts of problems with Astute. In general,
are you sharpening up your axe for our future nuclear capability?
Have you got the skills in place given the problems that we have
seen with Astute?
Lieutenant General Andrew Figgures:
In terms of the requirements, yes, we have sharpened the axe for
that. It is not my part of ship, to quote a nautical metaphor—in
terms of the supply side I defer to General Kevin for that, if
that were appropriate.
General Sir Kevin O'Donoghue:
I think the Astute Programme is heading in the right direction
now. As you say, there were some difficulties in the past. It
has been recovered and I think it is an impressive programme.
The first one is in the water, as you know, and we will go to
sea around the turn of the calendar year.
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