Examination of Witnesses (Questions 160-179)
GENERAL SIR
KEVIN O'DONOGHUE
KCB CBE, DR ANDREW
TYLER AND
REAR ADMIRAL
PAUL LAMBERT
CB
25 NOVEMBER 2008
Q160 John Smith: I would like to
go back a little bit on getting this balance right between value
for money and adequate frontline capability. Do you think that
we will ever get that balance right whilst the boards of our British
defence industries are packed with retired military chiefs and
retired senior civil servants from the MoD. Do you not agree that
there is a conflict of interest in those roles? Do you feel comfortable
that senior civil servants and military chiefs move seamlessly
from their role representing the interests of the taxpayer to
their role representing the sole interest of British companies?
General Sir Kevin O'Donoghue:
I would not agree they move seamlessly. There is quite a process
to go through, through the Cabinet Office system, where if you
want a job as you leave either as a senior civil servant or as
a senior military person you have to get authority to do that.
It is very rarely given within a year or two years of you leaving
post.
Q161 John Smith: My understanding
is that the only barrier placed on that is the time limit.
Rear Admiral Lambert: The trades
in performance, cost and time belong to the equipment capability
area. We are completely agnostic at that stage about who is running
which company and where it is, unless we need operational sovereignty
which goes into the performance part of that equation. Once we
have decided the performance, cost and time requirement we will
be discussing this with DE&S, the General's organisation,
looking at what particular options are available; and they will
look quite broadly at what options can fill that capability space.
I think they too will look as broadly as they can, taking into
consideration the operational sovereignty piece, without consideration
of who sits on which board and where.
Q162 John Smith: Is that not just
a little bit naive, in that the defence community in this country,
especially in recent years, is a relatively small one, the Civil
Service community is a small one. As successful as our industries
are, they are still relatively small, and everybody knows everybody
else. Do you agree with me that it is an unhealthy situation where
senior civil servants and senior military chiefs, without naming
names—and I talk about the size of the community and we
all know who we are talking about because all of you know them—as
you have dealt with them in the Department you now deal with them
on the boards of these companies when you are negotiating your
contracts? Do you not agree with me that this is a very unsatisfactory
relationship? If we are going to have serious Smart Procurement
you ought to put a stop to it?
General Sir Kevin O'Donoghue:
I do not actually agree with you because what you are doing is
accusing me of something I find not at all correct. We go through
an initial gate process. In a lot of instances the bidders, the
competitors at the initial gate through the assessment phase will
be overseas companies. We are one of the most open defence procurement
organisations in Europe, and we buy a lot overseas. Ex-military
and ex-civil servants are not necessarily on overseas companies'
boards. No, I am absolutely clear, that we do not get suborned
(if that is what you are suggesting) in that way. What we then
recommend, of course, goes up through the Investment Approval
Board and goes to the Treasury. I think that the checks and balances
on this are fine. I do not have a difficulty with that.
Q163 Chairman: I do not think there
was any accusation at you. I think there was, in what John Smith
was saying, a comment on cosiness. Do you not find that cosiness
a bit dangerous if you are to get the best value for money from
defence industry?
General Sir Kevin O'Donoghue:
Chairman, I think if you had been sitting in one or two of the
meetings I have had recently you would not accuse me of cosiness.
Q164 Chairman: That is because you
have got no money!
General Sir Kevin O'Donoghue:
But it is certainly not cosy!
Q165 John Smith: Even if we accepted
your explanation as to why you do not think there is a conflict
of interest, do you not think this does shatter public confidence
in your ability to do the job you are all trying to do? The fact
that senior military chiefs, the very top civil servants in the
Ministry of Defence, within a very short time of retiring from
their well paid and well pensioned jobs in the Ministry of Defence,
end up on the Boards of our biggest defence companies?
General Sir Kevin O'Donoghue:
The fact that they were what they were originally cuts no ice
with me.
Dr Tyler: In fact, if you actually
look across the senior executives, if I can use that broad swathe,
you will find that the large majority of the senior executives
in the companies have not previously been either serving military
officers or MoD civil servants. However, I do think it is important
that the companies in our industry do actually gain the benefit;
and they do gain a benefit by having the experience of those who
have been in the military before and those who have been in the
Civil Service before. Actually that underpins a lot of the understanding
that we have between the MoD and industry. Indeed it is something
this Committee has commented on in the past—about the need
to have a better understanding between the customer and industry—because
that is one of the things that in the past has damaged the relationships
and contributed to the poor performance on some of our projects.
To a degree, it is a very important feature to be able to have
that knowledge within our industry companies and vice-versa. Myself,
I originally came from industry; I had a short time in the defence
industry, but before that I was predominantly in the oil and gas
industry and the commercial shipping industry, and I feel I have
brought a lot into the Department through that fertilisation of
ideas across the industry and Civil Service boundary. I would
encourage it, up to a point.
Chairman: It is certainly true that experience
and knowledge should not be the sole disqualification from being
involved in industry!
Q166 Mr Holloway: Obviously I agree
with you and the Chairman on that point. Yesterday I was in a
curry restaurant near here and there was someone from a missile
manufacturer of my acquaintance with an Admiral of my acquaintance
who is about to leave the Navy cosying-up for lunch. Do you agree
with RUSI that the procurement budget is under-funded by £15
billion? As an extension of that: are we saying that, in order
to keep, say, shipbuilding in the UK, we are reducing the number
of ships available to defend the country?
General Sir Kevin O'Donoghue:
I do not think you can simply say that the equipment budget is
under-funded. Every programming Round it is a question of balancing
aspirations, requirements and the amount of money available.
Q167 Mr Holloway: That is under-funding,
is it not?
General Sir Kevin O'Donoghue:
Every government department, I suspect, would love buckets more
money, but there is not buckets more money. So we have to tailor
the money that is available to what is really required and not
the "nice-to-haves" and the "highly desirables".
It is really going back to your point earlier: let us get down
to the 80% of what is required and not the best being the enemy
of the good.
Q168 Mr Holloway: My question is:
are we not tailoring it to the domestic political requirements
in terms of, say, keeping an industry like shipbuilding going,
rather than the defence requirements of the country?
General Sir Kevin O'Donoghue:
In the way we procure equipment, we are certainly doing it in
the way the Defence Industrial Strategy says we should do it;
and that is government policy, so that is what we are doing.
Rear Admiral Lambert: During the
Planning Round we do look at the priorities in capability terms;
and it is the highest priorities which get brought back first.
It is not just to keep a sector going that we put it to the top
of the priority list; it is the defence requirements of the country
that have the highest priority.
Mr Jenkins: I think the concept of calls
for extra finance for defence expenditure is great; and I am one
of the people calling for extra finances; but I do not think it
sits well when we have got in the other place people standing
up and calling for extra finances when three former Chiefs of
Defence Staff were in the pay of defence companies, which they
did not actually state. I think that gels uneasily with the public
out there. With regard to the concept about hulls, maybe we could
get the hull made abroad but it is what is fitted in the hull
that is important; that is where the money is, and that certainly
could not be fitted abroad because we need to fit that ourselves.
Q169 Chairman: I see that you are
nodding, Dr Tyler, and I think that is sufficient answer because
that was largely a comment and we must not get into a debate but
ask some questions. I am going to ask some questions about this
short examination of the equipment programme. How short is "short"?
General Sir Kevin O'Donoghue:
If you are asking when will the announcement be made, I think
the Secretary of State said that he hoped to make announcements
before Christmas.
Q170 Chairman: Are you involved in
that?
General Sir Kevin O'Donoghue:
Yes. Our involvement in DE&S is to advise on costs, as the
options change, and industrial implications.
Q171 Chairman: Do you advise on something
that we discussed with industry last week, namely the issue of
whether programmes should be cut in an entirety or moved to the
right, stretched out? Do you advise on that?
General Sir Kevin O'Donoghue:
I advise on the costs of doing either; but these will be options.
I advise on the industrial implications of doing either.
Q172 Chairman: We were told by industry—and
you may not want to answer this question, you probably will not—that
the expectation was that programmes would be stretched out rather
than cut. Would that be your expectation?
General Sir Kevin O'Donoghue:
That it certainly one of the options.
Q173 Chairman: I thought you would
not!
Rear Admiral Lambert: If I may
add, that is a trade in time, and we talked about trading earlier—trading
performance, cost and time with all programmes. There are times
where one will trade time to reduce cost; and it is one of the
trades that is open during every Planning Round.
Q174 Chairman: Does trading time
usually reduce costs, or does it usually add costs towards the
end?
Rear Admiral Lambert: It may well
add costs towards the end. We have to look at the totality of
it. It may reduce cost in a particular year, or years. It may
increase costs over a complete cycle. It is one of the traits
that we have to consider when we are looking at the totality of
the programme.
Q175 Chairman: Your concern at the
moment is costs now, is it not?
Rear Admiral Lambert: It is always
one of the concerns. Costs now and whether the whole programme
is affordable over the long period of time.
Q176 Chairman: To what extent might
you fall into the category of saying, "We've simply got to
have this programme in the budget still", and the fact that
it is going to cost a lot more in, say, 2012, because of the actions
we take to stretch it out now, is just a burden that has to be
borne.
Rear Admiral Lambert: This is
something we go through during every Planning Round and then it
is really a matter of priorities for the capabilities we require.
If it is a "must have" for UK defence then it will have
to be given the right priority.
Q177 Mr Jenkin: Future Lynx still
has not gone through Main Gate. We seem to be spending money on
it. Is that the most efficient way of buying this aircraft?
General Sir Kevin O'Donoghue:
Yes, it has gone through Main Gate.
Q178 Robert Key: General, the MoD
Annual Report and Accounts 2007-08 said that the short examination
would focus on two issues, one was bearing down on costs and the
other was "rebalancing the equipment programme to better
support the frontline". What does that really mean "rebalancing"?
General Sir Kevin O'Donoghue:
To better support the frontline in current operations. The balance
is always here. We have to support the frontline on current operations.
We must not lose the seed corn for the future. Have we got the
balance between those two correct?
Q179 Robert Key: What does it mean
for longer-term equipment programmes, and our ability to fight
in future conflicts?
General Sir Kevin O'Donoghue:
That is what I am talking about: the seed corn for the future.
We must not lose that seed corn for the future. We might not need
as much equipment in a particular capability area now; but if
we are going to need it in the future we must not lose it in totality.
We have to keep that expertise going, the development, the research
and the ability for soldiers, sailors and airmen to train in that
capability area so we can use it in the future to the degree that
we need to use it in the future.
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