Examination of Witnesses (Questions 422-439)
BARONESS TAYLOR OF BOLTON, DR ANDREW TYLER AND MR AMYAS MORSE
29 APRIL 2008
Q422 Chairman: Good morning. I would like to welcome the witnesses to our session on employment and skills for defence in Scotland. Would you like to introduce yourselves for the record?
Baroness Taylor of Bolton: Thank you very much, Mr Chairman. I am Ann Taylor; I am Minister for Defence Equipment and Support. With me this morning I have our Defence Commercial Director, Amyas Morse, and the Defence Equipment and Support Chief Operating Officer, Andrew Tyler, and we will all, I hope, be able to answer your questions.
Q423 Chairman: Before we start on the detailed questions would you like to make any opening remarks?
Baroness Taylor of Bolton: No. We have had a look at some of your previous evidence sessions and we know that you are concentrating on the jobs aspect in Scotland, but we have no opening statement and we are happy just to take questions.
Q424 Chairman: Could you tell us then how many jobs does defence in Scotland support, both within the defence companies and the MoD and in the wider economy?
Baroness Taylor of Bolton: I thought you might ask that question and I did look at the estimates that you have been given by various previous witnesses. I do not think there is an absolutely definitive answer; I think we are all making estimates of this. The figures that I have in terms of the MoD overall are that we have about 18,500 service and civilian jobs located in Scotland and it is also thought that there are a further 12,500 jobs which are generated by the presence of the MoD, such as infrastructure for the bases.
Q425 Chairman: Industry expected that the contract for the Future Carriers would be signed by the end of March 2008 but I am led to believe that there are still some delays; so when do you think this contract will be signed?
Baroness Taylor of Bolton: We do not want to delay signing the contract any more than we have, but I do not think I can do better than repeat what the Secretary of State for Defence said yesterday at defence questions, which is when we have achieved the necessary alignment of the work schedule, the commercial arrangements and other related matters, when we have completed all of that then we will be able to be in a position to set a date for signing.
Q426 Chairman: You will be aware that if there is a delay in signing this contract there might be a potential for job losses, so obviously it is a matter of great concern to the industry and the workforce in those shipyards that this contract is signed without delay.
Baroness Taylor of Bolton: Yes, we are well aware of that and I think that everyone would be well aware of our serious intent with regard to the carriers and we have taken quite a number of steps which, if looked at together, do prove our serious intent on this. We signed a letter—Amyas Morse signed that on behalf of the Department—to give our legal underpinning to the work that was going into the creation of the Joint Venture, and we have also been very active in encouraging the ordering of some of the long lead items that are essential to keep this programme on track.
Q427 Chairman: We are receiving conflicting news. The industry is saying that the ball is in the court of the MoD and that the delay is on the part of the MoD, and if you talk to the MoD they are saying that they are awaiting some response from them. So where is the delay?
Baroness Taylor of Bolton: We are talking very directly and very openly with industry and with those involved about the details of the arrangements. There is not a long way to go.
Q428 Mr Davidson: On the question of the jobs relating to the carrier, taking us back to your previous answer, which was I think 18,500 jobs directly employed by the MoD and 12,500 in supported bases, is there an additional figure that you have for the number of jobs in things like the shipbuilding industry, which is a result of MoD procurement in Scotland, which would give us a fuller picture of the job creation that is achieved by the defence industry in Scotland?
Baroness Taylor of Bolton: Yes, it is very difficult to be very precise about the jobs because they do fluctuate over time and there certainly will be surges once the carrier moves forward—it is not just one consistent level of employment—and it is quite difficult to be precise about all the jobs because some could fall into more than one pot. On the figures that I have at the moment I have 2,800 carrier jobs in Scotland, 1,200 at Govan and 1,600 at Rosyth. That is on top of the 3,000 Type 45 jobs, of which I know you are well aware, on Clyde at the moment. As I say, it is difficult to give estimates. I have looked at the other estimates that you have been given by Scottish Enterprise and by industry. Nobody actually sits down and counts them at one particular point but those are the best estimates we have at the moment.
Q429 Mr Davidson: I do not want to focus simply on the carrier, though; I want to get some sort of indication of how many other jobs are supported in Scotland by the fact that Scotland is part of the UK and is therefore getting defence orders as part of the UK home defence market.
Baroness Taylor of Bolton: As I say there are the 3,000 Type 45 jobs and we have a large number of jobs in Scotland because of the nuclear deterrent; 850 civilian jobs relying directly on Trident; 580 civilian jobs at the base, and approximately 270 civilian jobs elsewhere; and an estimated 250 more civilian jobs relying indirectly on Trident. We have QinetiQ with 750.[1] There are significant areas of employment throughout Scotland.
Q430 Mr Davidson: Is there an overall estimate?
Baroness Taylor of Bolton: As I said at the beginning, the overall estimate is 18,500 service and civilian jobs.
Mr MacNeil: And very welcome jobs they are, of course, as well. I was wondering how they compare to comparable countries with the same population, say Norway, Denmark?
Q431 Mr Wallace: How many ships does Belgium make?
Baroness Taylor of Bolton: I have not done an international comparison because I was preparing for the jobs in Scotland rather than jobs elsewhere. I can tell you that we have a lot of jobs in England as well. But at the moment we have a very big shipbuilding programme; we are spending £14 billion on maritime spend over the next ten to 15 years and a significant amount of that workload will be in Scotland and therefore there are the jobs that go with that.
Q432 David Mundell: Can I ask you about the Alliance approach to the CVF programme and whether its' rather complicated structure prevents the MoD from providing strong and effective leadership?
Baroness Taylor of Bolton: I do not think that is a problem and I think that the Alliance has come about because of the very good relationship that the MoD has built up with the companies involved over the last few years. My predecessor initiated a lot of that work and was very directly involved and I think it has been put on a very sound footing. I will ask Amyas Morse to say a little more about that because he has been very directly involved in the discussions and the negotiations. But I do not think that it limits the influence of the MoD. We are the customer but we have a very close relationship with those who will be providing the carriers and I do not think that this arrangement on the part of industry would have come about had it not been driven by the Defence Industrial Strategy.
Mr Morse: I should say that as it happened both I and Andrew Tyler have been significantly involved in these discussions. Perhaps it is worth saying that one of the key things that came out of the Defence Industrial Strategy that relates to this project in particular is a realisation that while we asked for a very strong value for money performance, and rigorous commercial terms, when you carry out a complex project what you actually need is to work together with industry to solve the technical problems, and even then you need different parts of industry to come together, to bring their expertise and you create a space through alliancing to let them debate and offer up their expertise, and that is genuinely how the Alliance works. I mentioned Andrew; he is chairing the Alliance Board and I think that is our experience, and more widely it is a preferred method of working when we are delivering the sort of complex projects that it carries out. It has been proven to work in other areas of industry where complex projects have been undertaken.
Dr Tyler: As Amyas alluded to, I have chaired the Alliance Management Board for the last year. It is represented at a very senior level by the industry parties involved at top board level—Chief Executive and Chief Operating Officer level. I have to say that both myself and all the others involved with the Board believe that from the behaviours we have seen over the last year or so that at the Alliance Management Board level, the really strong feeling of collective ownership of the project has been enormous. The thing I would say is that we have the benefit on the one hand of having several pairs of eyes with a very strong interest in the project focused on the delivery of the project because each of the industry members of the project has a significant stake in the project. But unequivocally we retain our customer role and that is a very strong role, which is the reason, for example, why myself as the customer representative chairs that Board as the customer.
Q433 David Mundell: Taking on board the merits of the approach are you satisfied that the actual structure that you have within that Alliance is the most effective one?
Dr Tyler: Yes, absolutely I do. And we find ourselves very rigorously tested on all the aspects of project performance, whereas in the past it might have been simply ourselves and a single primary contractor looking at the information and making judgments about the project. We have the benefit in the Alliance that we have at least four interested parties who have their eyes on the project and are scrutinising the costs and the programme and very often in these Alliance Management Boards it is not necessarily myself as the customer who is providing the primary challenge, it could very easily be one of the industry parties who is providing the heavy challenge.
Q434 Mr Wallace: Can I follow up on my colleague's question there? When it was originally set up you had the Alliance and there was not a single prime contractor—originally there was but it was taken away. As I understand it now, because of the tax rules of the Treasury the prime contractor is back on the scene; is that correct?
Dr Tyler: It is not a prime contractor in the sense that we were previously using the term "prime contractor". We have what have called a "head contract", which in terms of the contractual structure is a contract through which the other industry parties receive what is technically a sub-contract, but because of the structure of the Alliance, the Alliance in the centre, which is what really matters because that is where the risk and reward in the project is managed. It sits effectively as a wrapper around the internal contractual arrangements, so those become of far less importance than the Alliance wrapper that sits around the outside, and in the Alliance wrapper all of the parties have an absolutely equal weight in terms of each having membership of the Alliance Management Board and there is no bias in that at all and you all have decision rights on the Management Board. So it is purely an internal construct of the contracting strategy, and you are right that it was to do with some aspects of the tax rules. Interestingly we worked through this—and we did not just work through this on our own, we worked through it with all the members of the Alliance—and in fact it was a couple of members of the Alliance who will technically be receiving a subcontract who partly came up with the idea of having a contract flow through to some subcontracts, and we are perfectly content with the arrangement. And at the time when Amyas and I negotiated this we all accepted that actually it was a very, very positive sign of Alliance behaviour the fact that these parties, who certainly under a traditional contracting arrangement would not necessarily have been comfortable to have been a subcontract, actually because of the Alliance construct they were happy to have been in that position.
Q435 Mr Wallace: But as the Treasury defines a prime contractor, the Treasury's rules, the prime contractor has gone back and replaced it—probably BAE Systems I think it is, is it not?
Dr Tyler: It is not a prime contract.
Q436 Mr Wallace: If it was in the Treasury you would define it as a prime contract because otherwise it would change the tax regulation.
Dr Tyler: I think if you defined it as that you would be ignoring the presence of the Alliance management contract that sits around it.
Mr Morse: If I may, there were a number of reasons for this, not primarily Treasury considerations. That is one of them but what we did not want to do was to create a legal partnership structure with, not to be boring about it, a complete flow through of liability and various things like that. So there were a number of technical considerations which made this the right structure to select, and they were not driven by the way in which it is going to operate and do business.
Q437 Mr Wallace: Therefore all the Alliance partners are carrying an equal amount of risk as they did before you had to change that. None of those changes have caused any delays to the contracting time? That has not been one of the factors behind why there has been a delay in signing, having to slightly alter the relationship?
Mr Morse: No, we agreed on the form of the Alliance some time ago.
Baroness Taylor of Bolton: It is the four main companies and MoD, all with a vote and everything has been unanimous.
Dr Tyler: As the customer we have the casting vote.
Q438 David Mundell: Can I come to the MARS tankers? They have been classified as commercial rather than naval vessels and I would be interested to hear your explanation of that, and in particular whether it sets a precedent for future MoD procurement, which could lead to more MoD procurements being placed outside the UK?
Baroness Taylor of Bolton: It does not set a precedent at all. There were probably two reasons why they are classified in that way. The first is that if we did apply to classify them in a different way as battleships it would take longer for us to be able to let a contract. And for the same reason we need these urgently. So we had the choice of going through a whole procedure but we needed them urgently. We were not sure that we would actually get that classification because basically they are tankers, although admittedly they have to have weaponry and be able to defend themselves. But it was not worth the risk of a delay for a decision which might not have gone in our favour anyway; but apart from that we would also need them urgently. These days tankers have to be double-hulled for obvious environmental reasons and these were the first part of the MARS project. It was clear from early days that these were the vessels that had to be acquired in the first instance that there is a degree of urgency. That is why we have approached that particular part of the MARS contract in that way, but it does not set a precedent for the other vessels, which we do think are more complex and have more issues involved.
Q439 David Mundell: Can I ask you about the current timetable for the carriers, and if the carriers slip from the current timetable and so release capacity at the yards in Govan and Scotstoun, whether the MoD would reconsider the decision in order to preserve shipbuilding skills there and across the UK?
Baroness Taylor of Bolton: You mean the MARS decision?
1 The witness later clarified that the total for QinetiQ should be "approximately 570" rather than 750. Back
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