Defence Equipment 2009 - Defence Committee Contents


Examination of Witnesses (Questions 40-59)

MR MIKE TURNER CBE, MR IAN GODDEN, DR SANDY WILSON AND MR BOB KEEN

18 NOVEMBER 2008

  Q40  Linda Gilroy: Are the lessons from that not being learnt?

  Mr Turner: I think on existing programmes like Tornado and Harrier, yes, this issue comes down to the future programme and getting an agreement. We have some in principle, as on the naval side and the military aircraft side and on the helicopter side. Without the long-term funding commitment, MoD cannot go beyond statements in principle: this is what we want to do. You can have the strategy, back to the original DIS, but without the money to put it into effect, you cannot do it. All the intent is there and I am pleased that MoD now talks about partnering and outsourcing and transparency. John Hutton and Quentin are very committed to that. The problem they face is this future equipment programme.

  Q41  Chairman: Did not the Tornado savings get put in place before the merger?

  Mr Turner: Yes. We were talking about it with the DLO for many years, yes, before the merger but bringing the DPA and the DLO together made the budgeting and planning of it all that much easier because we had the wall between them before.

  Mr Keen: I do not think it derived from the merger but the underpinning principles of the programme of partnering are clearly consistent with the sort of principles that the new organisation is trying to embed in the way they do business.

  Q42  Chairman: Consistent with but the merger was not necessary for those savings to be made?

  Mr Turner: It made it much easier.

  Q43  John Smith: That was the one example you gave of the specific benefits of the merger and it predates the merger. What examples can you give of direct benefits to industry of the merger of DLO and DPA?

  Mr Godden: You have to be careful here. It takes 18 months to get these things embedded. You cannot give historical evidence of something that is happening right now.

  Q44  John Smith: You were unanimous in your welcome of the merger. You said it was great and everything is going to work out well.

  Mr Turner: We have agreements in principle in a number of sectors now: on helicopters, land, air and maritime. The problem we have is that, having the agreements in principle, we have now basically stalled in putting those into long-term partnering agreements with the benefits that will flow. Having the combined organisation on the MoD side makes that easier, as with the Tornado: yes, it was thought of before but actually enacting, executing and running it is much easier with the combined organisation that we now have.

  Q45  Chairman: Ian Godden, I am going to be extremely unfair here. I apologise for this. You said we must not get too general and we must look at the specific issues. John Smith has asked you to give us one example. You said you could give us one or two examples. Can you give us one example?

  Mr Godden: I think Mike has just given the examples.

  Chairman: Mike Turner has given the example of something that was happening beforehand.

  Q46  John Smith: It pre-dates it.

  Mr Turner: Since we have the combined organisation, each sector has in principle an agreement for the long term, a long-term partnering agreement, which is great news for the industry. If it ever gets the funding to execute the strategy, I think we have a very sound defence industrial base in maritime, air, helicopters and on land; it will be in place. A lot of work has been done in principle to put these agreements in place for the long term.

  Q47  Chairman: That is a rather large "if", is it not because you have said that the entire problem with the Defence Industrial Strategy is not the Defence Industrial Strategy itself but whether it is funded?

  Mr Turner: Correct.

  Q48  Chairman: that is the problem with the long-term maintenance agreement?

  Mr Turner: Yes.

  Mr Keen: The struggle I am having is with the couple of examples I can think of that have happened. The most particular one is the long-term munitions agreement that has been put in place over the summer. To be honest, putting hand on heart, I am struggling whether that is as a result of the coming together of the two organisations. The problem is that there is an amalgam of different issues coming together here. There is the DIS and the reorganisation. Part of the reorganisation is the embedding of through life capability management. It is quite difficult to pick out individual elements that have been put in place as a result of the reorganisation. I suppose in the land sector generally, as Mike has said, there is an armed fighting vehicle partnering agreement, which is progressing as well. I would guess that the coming together of the acquisition and support bits of the organisation is definitely helping to bring a more holistic approach to that, in principle anyway, although, rather as Mike has said, we have not actually seen some of the tangible evidence of it.

  Q49  Chairman: All right, and I do not suppose we should over-play this point because industry welcomed the merger; this Committee welcomed the merger because in principle it seemed to be going in the right general direction. Let me ask you one specific question. Why has a through life management of submarines seemed to take rather a long time?

  Mr Turner: It is the same issue. I am now Chairman of Babcock and very familiar with the issues of putting a long-term agreement in place on the maintenance of submarines, for the reasons we have given many times this morning—money.

  Dr Wilson: Can I give you just one example at a quite low level of the bringing together of DPA and DLO? I will wear my other hat of General Dynamics here and comment. We now have an IPT which is dealing with both the continuing development and the through-life support, which was not the case three years ago. You can argue that that has come out of the merger. We have been able to do a number of things there, including a trade-off between how much we put into the support line and how much we put into the on-going development line, and we can actually see synergies between the development line and the support line developing things which will actually make support less expensive in future years. Even there, however, I think ultimately the absolute amount of money that can be made available will affect the effectiveness of that new arrangement. However, it is there and it is working and that is at an everyday working level, so there are things like that that are going on.

  Q50  Chairman: That is helpful.

  Dr Wilson: But money still will determine whether the most optimised support solution will be there and the most optimised spiral development will be there, and we will wait and see what happens in the forthcoming PR09.

  Chairman: Linda Gilroy has not finished yet.

  Q51  Linda Gilroy: Moving on to the staffing side of DE&S, what is the industry's view on the plans to reduce the number of staff by some 25% by 2012? Is this creating additional pressures? How does it seem from your point of view?

  Mr Turner: It is a bit of a management consultant thing from your background, Ian.

  Mr Godden: My feeling is that it is right to do them both and that that is absolutely the case. On occasions it will conflict obviously, as any cost reduction exercise or any productivity improvement exercise would, at the same time as re-organising, and at the same time as fighting two wars. There is a lot of pressure on but I do not see the evidence that says that the cuts themselves are getting in the way of the programmes. I think those two are such that they can be combined. There are plenty of examples of other large organisations that are able to do two at once. In fact, there is an argument for saying we need about 150 to 300 very good people to drive these sorts of programmes through. That is the sort of level we are talking about. We are not requiring 10,000 people to do that and therefore as long as that core of people who are associated with Change programmes are in place and are stable and their futures are certain, then it is at that sort of level that is required to improve the programmes, so I do not see those as necessarily in conflict at all.

  Q52  Linda Gilroy: We have heard in evidence that there are some tensions between the good people being sent to the urgent operational requirements to meet them. Alongside this very significant reduction in staff, 25%, it is one in four of every staff, are the right people in the right places to do the jobs that need to be done?

  Mr Godden: Personally I have not seen evidence where that gets in the way. All I know is that the uncertainty it creates is more the issue than the actual resources. I think the uncertainty of any reduction programme lives on and lives in the minds of people more than the actual resource issue itself, and that is what I think we need to get the other side to.

  Mr Turner: There are two general areas of comment. I think industry has proved through outsourcing the benefits in terms of cost reduction and reliability improvements and we would like to see more of that. I think there is a willingness now on the MoD, because of the evidence, to do more of that, so clearly that would benefit manpower on the MoD side. Secondly, we are concerned on some programmes at the level of man-marking that takes place and we think there could be savings there, so we hope that is all being taken into account.

  Q53  Linda Gilroy: I do not recognise that; what is man-marking?

  Mr Turner: As you are undertaking programmes and as you are executing programmes in industry and companies, you have maybe too many MoD people alongside you.

  Q54  Linda Gilroy: It is an issue of second-guessing?

  Mr Godden: It is like the oil industry from which I came where the large oil companies like BP used to second-guess all the contractors and then the contractors used to second-guess the sub-primes and you had man-marking basically going on all the way down the line. BP eliminated that and removed a large chunk of that man-marking and discovered it actually improved things.

  Q55  John Smith: An issue that has come up for us time and time again, and it might be related to this, is whether the skills within what was the agency exist to be able to oversee long-term partnering contracts, which are very complex and which are still fairly new to private industry. We were assured that there were training programmes in place and big developments had been made. Is that your perception on the industry side?

  Mr Turner: I think Amyas Morse has done an excellent job coming in as the Commercial Director of MoD with the training programmes and bringing more commercial people in. Clearly in the bad old days of fixed price design, development and production, "throw it over the fence", you did not need it. In the enlightened world of partnering we are now in you do need that, but the real help in that is what Linda mentioned about gain-sharing, the fact that both sides can benefit, it is a win/win situation. If you get the right structure in these partnering agreements costs come down, industry makes an acceptable return and both sides and the Armed Forces, which is the end result, win on that, so, yes, significant strides have been made and I think Amyas Morse and the guys in the MoD should be congratulated on that.

  Mr Godden: I agree with that entirely. I see it every day, secondments out to industry, secondments the other way, plus Amyas and his programmes, and that has had a big effect and will for the future.

  Q56  Mr Jenkins: As you know, the MoD only "partly met" its Public Service Agreement target of delivering equipment programmes to cost and time. In fact, the MoD Annual Report and Accounts 2007-08 states that "procurement performance declined". Do you have a view on why this performance declined?

  Mr Turner: There is the legacy. To give the helicopter view, there are two leading countries which have the highest level capabilities in Armed Forces in the world and those are the United States and the United Kingdom. If you compare the UK's overspend and delays with the US's it is a fantastic result. In any comparison between what the UK overspends and the length of their programmes compared to the United States, the UK is doing an amazing job. What we are now benefitting from, and still suffering from as well, is the legacy programmes, but the change away from fixed price design, development and production on complex programmes without the right risk mitigation being taken up-front, the investment up-front, before industry enters into the commitments and politicians stand up in Parliament and give in service dates and commitments to budgets, that is a huge step forward. On the Carrier, for example, that has been well done. We had refused and the MoD had gone along with our refusal to commit to dates and budgets until risk mitigation had taken place and proper risk registers were put in place. I have lots of evidence and I have the scars from Nimrod and Astute when that was not the case. I think we are still suffering from those legacies. The way the MoD now conducts itself in risk mitigation upfront is absolutely right and we should be proud compared to the US of what the MoD has achieved.

  Q57  Mr Jenkins: Because it is said that the MoD and industry had a so-called "conspiracy of optimism"?

  Mr Turner: Sir Peter Spencer.

  Q58  Mr Jenkins: You think that time is more or less past?

  Mr Turner: I am afraid in the past when there was so much budget available people, largely within the MoD, said, "Yes, we can do it for that," and industry, by and large, to stay in business, went along with it.

  Q59  Mr Jenkins: If I remember the term they said, "If we offered them the true cost they would run a mile so we offer them a lower price and then we get them hooked." It is like that advert on the telly, "We put a juicy worm on the hook and when we hook them we put them in the keep-net."

  Mr Turner: I was party to the Nimrod in the mid-1990s and we wrongly believed that we could do it for that price. We convinced ourselves, I do not know on what basis but we did, having spent only a few million pounds up-front that, yes, it was possible to do that. We were wrong and it is only in time as you spend what is recommended, which is some 15% of the total programme bill up-front, that you understand the technicalities and the risk registers and you do it properly. It is good that that has happened. Companies do not do that.


 
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