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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