Examination of Witnesses (Questions 460-466)
MR QUENTIN
DAVIES MP, GENERAL
SIR KEVIN
O'DONOGHUE KCB CBE, LIEUTENANT
GENERAL ANDREW
FIGGURES CBE AND
MR AMYAS
MORSE
16 DECEMBER 2008
Q460 Chairman: He said: " ...
the primes are suffering on the major programmes. We are not flowing
down and are unable to flow down money to the supply chain. We
have made the point about SMEs in the defence industrial base.
Frankly, I do not think we are being listened to."
Mr Davies: I certainly cannot
believe that Mr Turner thinks he is not being listened to.
Q461 Chairman: He says that he is
not being listened to.
Mr Davies: He is certainly being
listened to by me at the present time and will continue to be
listened to. There are a number of issues in the quote you have
just given the Committee, Mr Arbuthnot, and one of them relates
to how much money there is and I do repeat that Mr Turner would
hardly be doing his job as a representative of the defence industry
if he expressed satisfaction with the amount of money that is
available. I assume that for the rest of time he and his successors
in that job will always say they would like to have more money
available. It is perfectly natural, perfectly understandable,
not a complaint by me at all, it is just a natural state of affairs.
So far as the SMEs are concerned, that raises another issue and
there are some misunderstandings here. We of course indirectly
give business to a colossal number of SMEs and they recognise
it, and we often get indirectly some absolutely vital technological
inputs from SMEs but we do not actually do in our business that
much business directly with SMEs because we tend to work through
primes, we tend to work through lead contractors, we tend to want
to have one major partner or a consortium of major partners taking
the risks as our counterparty to get both the technical and the
commercial risks to be borne by someone who has the balance sheet
able to bear them. They are responsible for placing sub-contracts
and have the subsequent relationship with the SMEs; it does not
mean to say that our business is not vital for those SMEs but
it does mean that the number of SMEs we have a direct contractual
relationship with sounds rather small—it is something like
3% of our business.
Q462 Chairman: Of course that is
true but it is the primes that tell us—you would not because
you are not in direct contractual relationship with them—that
the SMEs are suffering. Are you aware of that?
Mr Davies: I am certainly aware
that there is always pressure on us—and this will be true
to the end of time—from our major suppliers to provide more
money with more programmes and so on and so forth; that is perfectly
natural. But I do not think actually, given that these people
are realistic, sophisticated businessmen, that in their heart
of hearts they think that either they are being unreasonably treated
by the Ministry of Defence or that our defence procurement programme
as a whole is other than one which is a very substantial one and
one which represents a very good basis for doing business in the
defence sector in this country.
Q463 Chairman: Except that Mike Turner
himself, when he was in front of us, told us: "I tell you
now this industry is in decline and unless people pay attention
to the budgeting of defence in this country and the defence industrial
base we do not have a future." That may be a bit apocalyptic,
but you cannot just dismiss that can you?
Mr Davies: I think everything
I have said has reflected what is quite genuine, which is that
I have the greatest regard for Mr Turner; he does a superb job
as the advocate for the defence industry in this country.
Q464 Chairman: He is more than an
advocate for the defence industry, he is a practitioner.
Mr Davies: He is indeed, he has
a number of individual roles, but he is actually no longer the
chairman of BAe Systems as he was until very recently.
Q465 Chairman: No, but Babcock would
do.
Mr Davies: Yes, indeed. But his
main role in which he comes to see me actually tends to be not
so much about Babcock business but representing the defence industry
as a whole. I am always very interested to talk to him about that
but I do understand that the role of advocacy of any particular
sector does require putting pressure on the major customer to
come up with as much money as possible as rapidly as possible;
that is the way the game has got to be played. There is no misunderstanding
on either of our parts about the role which Mr Turner plays on
behalf of his industry, and he does it extraordinarily well and
extremely ably.
Q466 Chairman: Should we treat what
he told us as being "He would say that wouldn't he"?
Mr Davies: No, Mr Arbuthnot, in
a Committee of this kind where there is a very sophisticated understanding
of the sector you make your own decisions about how you discount
what is said from the point of view of the agenda of whoever is
saying it. I am sure that goes for me too.
Chairman: It certainly will. Thank you
very much, Minister, for coming with your team of thousands and
for helping us to finish off our report on Defence Equipment.
It has been a very interesting session and it has been quite a
long one but a very, very important one. Thank you very much indeed.
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