Examination of Witnesses (Questions 300-319)
MR QUENTIN
DAVIES MP, GENERAL
SIR KEVIN
O'DONOGHUE KCB CBE, LIEUTENANT
GENERAL ANDREW
FIGGURES CBE AND
MR AMYAS
MORSE
16 DECEMBER 2008
Q300 Chairman: So you do not at the
moment envisage cancellations or delays to be announced in the
spring? You were just announcing that to give yourselves some
flexibility?
Mr Davies: We made that statement
to give ourselves flexibility, and of course when I say flexibility
I cannot exclude anything, but there is no hidden agenda here,
I am not concealing from you some dramatic decision which we are
about to come out with and which we have, for some reason, decided
not to include in the equipment examination. The equipment examination
is what it says it is: we are engaged in the exercise that I have
just described, nothing more than that and nothing less than that.
Q301 Chairman: If industry is in
search of clarity, is industry going to be able to get a bit more
clarity in the spring or earlier than the spring?
Mr Davies: This is, as I say,
a continuous review by us of our priorities, of what we feel we
can afford immediately, what we cannot afford immediately, but
we would like to have over the shorter or medium term, and what
perhaps we think is no longer necessary. There is also this necessary
discipline and process. Industry always wants the maximum degree
of clarity and we would like to give industry as much clarity
as we can, but we cannot give industry clarity at the expense
of that essential flexibility and we cannot predict the unpredictable.
I think industry understands that and certainly it has been my
habit so far in the last two and a half months to try and keep
closely in touch with industry and to be as transparent with them
as possible about the issues that we face, and the decisions we
need to take, and why we are taking them.
Q302 Robert Key: Minister, one of
the aims of the short examination was "rebalancing the Equipment
Programme to better support the frontline". The Written Ministerial
Statement said "the work to date will bring the defence equipment
programme more closely into balance". It would be very helpful
if you could just explain a little more what you mean by this
"balance" and what is "rebalancing"?
Mr Davies: As I have just explained,
Mr Key, as I see it, there are two balances that need to be struck.
You could look at this, if you were mathematically inclined I
suppose, on the basis of a matrix and draw out a matrix, and no
doubt you could produce an equation if you wanted to, but I see
it really as looking at two balances and the essence of my job
is contained in making sure that those balances are optimised.
As I say, one is the balance of priorities, what we really must
spend money on immediately, what is less essential, what is merely
desirable, and of what is desirable what we should plan to purchase
at some point and perhaps what we do not need altogether. There
are elements of all of these things, as a matter of fact, in the
equipment examination. The second is the right balance between
the immediate requirements of the operations that we are engaged
in and the need to maintain, as I say, the long term and to nurture
and to improve steadily the long-term defence capability of the
nation so that we are able to meet a range of potential threats,
which, by definition since the future is uncertain, one cannot
predict. What I do not want to do is put myself in the position
of John Nott who decided to focus entirely on immediate Cold War
threats and wanted to get rid of the carriers just a few months
before the Argentinians invaded the Falklands. I do not think
that he can be faulted for not predicting that the Argentinians
were about to invade the Falklands; no-one could have a predicted
that. I think he might be faulted because he did not sufficiently
respect the principle of diversification. He was perhaps too inclined
to put all his eggs in one basket. We do not want to do that and
I have already explained that we are not doing that and, as you
have noticed, we have not cancelled any major long-term programmes
which do not have anything to do with the immediate operational
requirements. There might have been some people who thought we
would do that. There might have been rumours to the effect that
we were going to do that. We have not done that and we would not
want to do that.
Q303 Robert Key: Coming back to 2008,
why did the programme become unbalanced?
Mr Davies: Simply because there
are always financial pressures and, as we know, it is inevitable
in life I suppose when you are operating at the frontiers of technology
that you cannot predict exactly what the cost is going to be of
resolving certain technical problems, so you do have the problem
of cost overruns because when you are involved in an operational
theatre, as you know just as well as anybody in this room Mr Key,
it is impossible to predict the evolution of any particular threat.
Every armed conflict that we get into—and that has been
the case throughout history and always will be the case throughout
history—presents its own sui generis kinds of characteristics
and particular requirements that we need to meet it, and those
requirements evolve, and we analyse the threat better the longer
we are involved in it. New requirements emerge, so what you start
off with, which you think is a clear description of our defence
capability and requirements and you start to put some prices against
those, some cost estimates and so forth, you find, even after
a few months, that you want to look at it again and you want to
see again whether you have got the right order of priorities.
You may well find that the cost estimates add up to something
rather more than you have in your current budget, so you have
to make some decisions, you have to make some arbitrages. That
is how the process works and I cannot see any way that the process
would work differently from that.
Q304 Robert Key: That is a very interesting
answer. What is the process within the Ministry of Defence for
ensuring that the programme remains in balance because, presumably,
nobody wants to go off in a particular direction and then come
to a shuddering halt and have another inquiry into why it has
become unbalanced? What is the mechanism for keeping it in balance?
Mr Davies: There are several mechanisms.
One is we have a commitment control regime at the present time
to try and make sure that nobody signs off a cheque or signs a
contract which has the effect potentially of threatening something
which might have a higher priority in the programme later that
year. We have introduced this new discipline and I think that
is a sensible tool to have in any organisation. I come from a
private sector background, as you know, and that would be a normal
control mechanism in any private sector organisation. Then we
have had this year, a kind of exceptional thing, the equipment
examination, but I am not sure that it should be necessarily an
exceptional thing. Though I do not think it needs to be something
which is quite so dramatic, or apparently so dramatic and so explicit
as what we have had this year, I intend to do something of that
kind every year. I think it is sensible to do it internally. I
have set up myself a new committee and all the officials and Generals
who are on this table with me this morning are part of that, and
one or two other people as well, including the Chief of the Defence
Staff, which is specifically looking at longer term priorities,
so that we are trying a little bit ahead of time now to see how
our priorities might be evolving and what kind of new requirements
we might be faced with. I did not need to introduce my team because
you know them well and you know that General Figgures is in charge
of anticipating capability requirements. We are trying to take
that into account and look at some of the financial consequences
of that a little bit earlier in the system than previously we
were.
Q305 Robert Key: That will come as
welcome news to the private sector who, in the shape of the Defence
Industries Council, complained to us that they believed the Ministry
of Defence was focusing too much on the short team. I hope very
much that you will be telling the Chairman of the Defence Industries
Council all about your new committee and what it is going to do.
Mr Davies: We do keep in touch
with the Defence Industries Council and the Chairman comes to
see me from time to time, and I see him on various occasions,
as you can imagine, and although I have only been doing this job
for two and a half months, I feel that I have got really quite
a good working relationship with him. He is an extremely experienced
businessman, as you know, and always a very interesting person
to talk to.
Q306 Chairman: The answer to Robert
Key was really yes.
Mr Davies: The answer indeed,
with your flair for succinctness, Chairman, was yes.
Q307 Mr Jenkins: Minister, you actually
mentioned a mathematical matrix. Does your Department have one
and is it possible that we could get a copy because I have been
trying for years to get my hands on a copy of this matrix?
Mr Davies: I did not know that
it was a concept that anybody else had actually thought of. It
was a throwaway line. When you have two balances, you can clearly
produce a matrix if you want to. I have not actually produced
one and no one else has produced one, and I do not see any reason
unnecessarily to mathematise the decision-making process in the
way that you have picked up. What I said was really a rather light-hearted
kind of remark, not to be taken too seriously, but certainly you
could produce a matrix if you wanted to. It would not be a very
complicated matrix because, as a matter of fact, it has only got
four variables in it.
Chairman: Moving on to the aircraft carriers,
Vice-Chairman David Crausby.
Q308 Mr Crausby: In early July the
MoD announced that the contracts would be placed for the new carriers,
and we assume that the MoD only makes announcements of that kind
when everything is in place and all the ducks are in a row effectively,
and yet last week, in your Ministerial Statement, only five months
later, you announce that the in-service date for the new carriers
is likely to be delayed by one to two years. What has changed
so dramatically in five months? Exactly when are the two carriers
now expected to enter service? Can you tell us something about
the lives of the current aircraft carriers and will they be extended,
effectively, to fill any potential capability gaps?
Mr Davies: Mr Crausby, there are
two questions there and they are very reasonable and very sensible
questions. Can I just say first of all that I have been doing
this job for two and a half months, as I have just said, and I
have not wanted to spend too much of my time getting involved
in historical research, so exactly what was in the mind of who,
at what particular time in relation to the ordering of the carriers
over the last few years is not something that I have actually
investigated. There was a time of course when the JSF would have
had a potential in-service date, not a formal in-service date
because we have not been to Main Gate on it, and would have had
an expected entry into service rather earlier than is currently
the case. I pay very great tribute, by the way, to our predecessors
and to Des Browne, who signed that particular contract, for wanting
to make progress with it at the earliest possible opportunity,
and it is enormously important that he did so because these are
tremendously important defence assets for the nation and will
be for a long team in the future. However, for whatever reason,
the particular dates involved in the contract which was signed
last July were ones which, when I looked at them, I realised could
actually be extended with no loss to the defence capability of
the nation at all. If you like, it was a kind of free hit. We
find ourselves under a certain amount of financial pressure. The
last thing I wanted to do was to delay programmes which are really
essential in the short term, either for operational reasons or
for other reasons, but this was an opportunity in fact to re-profile
our spending plans in a way which involved no defence costs, but
simply made the delivery date of the carriers rather more rational,
and reduced the gap between both the launching and the in-service
date of the carriers and the arrival of the JSF aircraft to fly
on them, so that is the decision we took. As you rightly say,
what we are doing now is extending it by roughly one year. We
have not come up with a formal in-service date yet but we will
no doubt be doing that fairly shortly. We have said that we are
delaying the first carrier, the Queen Elizabeth, by about
one year, so instead of an in-service date of 2014, it will be
2015 and, without me stating what the formal in-service date is,
if I add one to 14 I have come up with an unambiguous answer that
no-one will contest. Equally, the second carrier, the Prince
of Wales, would be extended again by approximately two years,
that would have been from roughly 2016 to 2018. The second question
you ask is what does that mean for the existing three carriers.
The Invincible is already at some notice in fact; Ark
Royal will probably be withdrawn from service before too long,
in the course of the next few years, and we will need to have
Illustrious certainly remain in-service until it is quite
clear that the Queen Elizabeth has passed her sea trials
and that her aircraft complement, whether they are still Harriers
or JSFs at that stage, are fully worked up and operational. The
object of investing in two carriers—let me be clear about
this—is to make absolutely certain that the country at any
one time can launch one of them with a proper force of aircraft
on her, so that is the important thing, and that we will always
achieve. We are looking again at the issue as to whether or not
it is sensible to extend Illustrious's in-service period
and, if so, whether that would involve cost of any kind or whether
it would not, Illustrious's to provide a slightly greater
degree of overlap. I am quite confident that things can be done
and the central principle will be preserved and conserved and
respected: that the country will always have at least one carrier
with a full complement of aircraft which can be deployed in defence
of the nation.
Q309 Mr Crausby: Is it still the
intention to operate Harrier GR9s from the aircraft until JSF
is ready to operate because we still do not know when the Joint
Strike Fighter will enter service, do we? Could that mean that
there will be further delays to the carriers on the basis of when
the Joint Strike Fighter is ready?
Mr Davies: I can give you an unambiguous
yes to the first of your questions. It is exactly the intention
to carry on with the Harriers until they are replaced by the JSFs.
The second point you have raised, will there be further delays
to the JSF, you will understand, Mr Crausby, it would not be responsible
for me to come here and to give you a personal guarantee that
there cannot be any delays to the JSF programme. You would think
that I was slightly crazy if I said such a thing. I can tell you
that the recent news on that front is encouraging. As you know,
basically it is an American programme, and we are an important
part of it, in fact we are the most important ally in terms of
our commitment to that programme, and we have come up with, as
you know, a $2 billion contribution to the development costs of
that and we are very close to it. The Americans keep us in close
touch and the recent news about the development programme has
been encouraging. This is a new fifth-generation aircraft. Of
course it is perfectly possible—I had better touch wood
with both hands—that something unforeseen could arise, so
I cannot give you the kind of personal guarantee that you require.
Q310 Mr Crausby: Will that affect
the carriers in any way?
Mr Davies: No of course not because
that would mean that we would have to take measures of various
kinds to make sure that we extended the life of the Harrier. Anything
is theoretically possible in this life, but I really do not think
that anybody involved in this programme expects there to be really
serious delays of the kind that you might be suggesting which
would mean that we would have a real lacuna in our defence capability
in this area. The schedule forward for the JSF is that early next
year (I trust) I shall be asked to take a decision on the purchase
of three operational testing and evaluation aircraft. Of course
since I have to take a decision, I have to take the decision on
advice in the light of the circumstances at the time. I cannot
give you some formal promise that I am going to take a positive
decision. You can perhaps draw your own conclusions from what
I am saying about our commitment to the programme as a whole.
If I sign that contract, we shall then find that a couple of years
further down the line we get those aircraft. We will need to test
them to exhaustion. We will need to make sure that we are absolutely
happy with them. Of course our American allies are doing the same
thing, with rather more testing and evaluation aircraft. We will
then be able to start placing orders for the production aircraft—
Q311 Chairman: Minister, can I ask
for briefer replies please. I think you have already answered
the question.
Mr Davies: The answer to Mr Crausby's
first question is unambiguously yes. The answer to the second
question, which is do I anticipate some delay and some problem
in the JSF programme, is no, in the sense that there is nothing
specific that I am particularly worried about at the moment, but
I have said already, and I must make that proviso or that reservation,
I cannot guarantee the future and I cannot give a personal guarantee
that nothing untoward will ever occur; that would be absurd.
Q312 Robert Key: Minister, that is
encouraging news but when CDM was last asked how many JSFs there
would be, he said it depended how much they cost. Are we building
these two aircraft carriers on the basis that we might or might
not be able to afford 10, 20, 30 or 40 JSFs? What is the answer
to this? How many JSFs do you anticipate will be ordered if you
decide to go ahead and order them?
Mr Davies: This is going to be
difficult for me to answer in two words.
Q313 Chairman: Something like 53
would be in order.
Mr Davies: Can I say that I start
from the other end. First of all, we have to decide what we want
these carriers for. We want these carriers to carry as much punch
as possible. Therefore, I ask myself how many force elements at
readiness we need on this carrier. Let us say we need 36 force
elements at readiness on this carrier. We then have to decide
how many aircraft we need in our fleet in order to generate 36
force elements at readiness. I cannot give you today an exact
answer to that. It depends upon the serviceability of the aircraft;
it depends on the operability of the aircraft; it depends on how
much flying time we have; how often we have to service these aircraft.
We do not know that. That is part of the purpose, by the way,
of buying these operational testing and evaluation aircraft. We
shall then know rather better. I cannot tell you whether we need
to provide for attrition or at what stage. If the production line
remains open until 2030 we shall not need to buy any aircraft
to provide for potential attrition. If the Americans are about
to close the production line, we shall jolly well have to buy
rapidly a lot of spares and some aircraft to provide for attrition.
I cannot answer your question. In a way, your question, to my
mind, comes from the wrong direction. We have said that we do
not expect to buy more than 150 aircraft in all and I think that
remains a reasonable best guess kind of description of the position
for the moment, which is a very early moment in the programme.
I do not know how many words that was, Chairman, probably rather
more than your limit!
Chairman: Lots!
Q314 Mr Crausby: You said the decision
would be at no cost and it was an easy decision in that sense.
Mr Davies: I said no defence costs,
Mr Crausby, no costs in terms of our defence capability, that
is the point I made.
Q315 Mr Crausby: What about the financial
cost then? Has industry been consulted on that? Have they provided
an estimate as to what the extra cost would be by delaying the
carriers? How much will it cost, if anything, to extend the lives
of the current carriers?
Mr Davies: The answer to your
first question is they have provided an estimate and we have discussed
these matters, but these are purely internal estimates. That is
why I am not going to give them to you today because such estimates
are not robust. If you publish them in public, they develop an
importance which one should not attribute to them, and then you
have to revise them after a few weeks or a few months and everybody
accuses you of changing your mind or getting your calculations
wrong.
Q316 Chairman: As you have actually
done with the contract for the carrier itself?
Mr Davies: In the case of the
contract for the carrier itself, Chairman, clearly there was a
contract, but when you sign a contract, there is a defining moment.
What we are talking about now is a series of discussions with
the alliance which is producing the carriers, and we have discussed
figures along these lines, yes. They are commercially sensitive,
by the way, and they might even be market sensitive in certain
cases, so I certainly cannot say what they are. In terms of any
cost of continuing slightly longer with Illustrious, the
point I made earlier on, that is not a matter which we have focused
on yet and not a matter I think we need to focus on at this particular
juncture.
Q317 Mr Crausby: So it will need
a new contract. Is that resolved?
Mr Davies: No, we do not need
a new contract because the existing contract provides for a sufficient
degree of flexibility, but we will be signing protocols with the
ship builder, with the alliance, to implement in practice what
we have negotiated with them in terms of a new schedule for delivery
times.
Q318 Mr Crausby: Can I ask some questions
then about how the delay will be managed by industry, because
all you have really said is that the in-service date will be extended.
How will that happen? Will it be that the programme will be slowed
down or will the carriers be completed and then held up? Has that
been considered?
Mr Davies: No, there is no question
of completing the work on the existing schedule, and then just
stopping everything and downing tools and everybody going away
for six months' holiday; nothing of that sort, no. I do not think
one can do visual aids on an occasion like this but if you could
imagine a kind of graph, with pound signs on the vertical axis
and a time series on the horizontal axis, you would find that
the fixed costs of ship-building activity, which in this case
is in carriers, would be pretty much fixed right across the bottom.
There would be design costs right at the beginning of the contractual
phase, which would fall away fairly sharply. There would be materials,
which would rise gradually and reach a peak, and there would be
labour which would reach a considerable peak and fall away. If
you contract the process, in other words if you have a shorter
time to delivery, those peaks, particularly the labour peak, are
quite high. If you extend the period of delivery, then that peak,
in terms of labour cost, which is mostly met by overtime and by
contract labour or by short-term hirings, it is not the permanent
staff or the permanent employees of the shipyards concerned, can
be flattened somewhat. If you can visualise flattening that peak,
that does not in any way cause any structural unemployment.
Q319 Mr Crausby: So we can be assured
that there will be no job losses?
Mr Davies: That has been my concern
all along, Mr Crausby, and that has been a fundamental element
in our discussions with the alliance, and I am satisfied that
we shall achieve it on that basis, yes.
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