UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To
be published as HC 107-i
House of COMMONS
MINUTES OF EVIDENCE
TAKEN BEFORE
DEFENCE COMMITTEE
DEFENCE
EQUIPMENT
Tuesday 16 December 2008
MR
QUENTIN DAVIES MP, GENERAL SIR KEVIN O'DONOGHUE KCB CBE,
LIEUTENANT
GENERAL ANDREW FIGGURES CBE and MR AMYAS MORSE
Evidence heard in Public Questions 298- 466
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Oral Evidence
Taken before the Defence Committee
on Tuesday 16 December 2008
Members present
Mr James Arbuthnot, in the Chair
Mr David Crausby
Linda Gilroy
Mr Dai Havard
Mr Adam Holloway
Mr Bernard Jenkin
Mr Brian Jenkins
Robert Key
John Smith
________________
Memorandum submitted by Ministry of Defence
Examination of Witnesses
Witnesses: Mr Quentin Davies MP, Under Secretary
of State and Minister for Defence Equipment and Support, General Sir Kevin O'Donoghue KCB CBE, Chief of Defence Material, Lieutenant General Andrew Figgures CBE, Deputy Chief of the Defence Staff
(Equipment Capability), and Mr Amyas
Morse, Defence Commercial Director, Ministry of Defence, gave evidence.
Q298 Chairman: Minister, good morning. There
is no need to introduce your team, unusually, because, apart from you,
Minister, they have all been in front of us before. This is a delayed evidence session from last
week because of the announcement that was shortly to come out, which did come
out on Thursday, and so I hope that we can get some answers that we could not
possibly have got last week. Could I begin,
Minister, by asking about the short examination of the Equipment Programme,
which we were told would be completed "within weeks rather than months" and
certainly before Christmas. In view of
the Written Statement that came out on Thursday, does that mean that the short
examination is now complete?
Mr Davies: Well, thank
you, Chairman. Can I first of all apologise
for my voice. I hope that it does last
the course; I trust that it will. To
start off on a slightly sombre note, which I think it is right to do in the
circumstances, sadly, we had another fatality yesterday in Afghanistan,
bringing to 133 the total losses we have had in that theatre. I mention it both to pay tribute to the
individual and to make clear to his family that we are thinking of him, and
indeed them, but also because it is the sombre background to all our
proceedings and to all the decisions that I take in my present job. To move to the equipment examination, as you
know, I have had my present responsibilities since the beginning of October, as
has the Secretary of State, and we arrived when the equipment examination had
already made some progress through official channels, but I am not sure that it
had actually reached the previous set of Ministers, and so it was necessary for
us to take a careful look at it and decide what shape we wanted it to
have. That no doubt prolonged things a
little bit. I believe now that it is an
examination which has achieved its purpose, and, as I see it really, there are
two essential purposes to this particular exercise, and it is a very useful and
indeed necessary exercise to go through.
One has been to clarify in our own minds priorities and particularly to distinguish
between the essential and the less than essential, what I tend to call
internally (and my colleagues will be more than familiar with my use of the
phrase) the "must have" and the "nice to have" categories. The second thing is to strike the right
balance between the short-term, immediate operational needs that we face with
the current threats that we are facing, and the longer term requirements for
the broad capability for our Armed Forces that enables us to have reasonable
certainty of being able to respond to a range of threats, none of which of
course can be predicted at this point.
We need to retain that essential element of flexibility and
diversification of the means of response for the future, so we do not want to
sacrifice that to the short term entirely.
We have to strike a balance, which is why you notice that we are
continuing with a whole range of programmes, including submarines, combat
aircraft, air superiority aircraft, and so forth, which very obviously do not
relate to the present needs of theatre, although we have made a number of
adjustments which are particularly influenced by the immediate operational
needs that we have. The FREZ programme
and the rebalancing within the FREZ programme would be a good example of
that. To answer your question is it
completed; yes, but do understand, and I know, Chairman, that you will know
this extremely well and I think members of your Committee will appreciate this
immediately, there is no such thing as a definitive, final certainty in this
matter. That would not be a responsible
way to proceed. We can never be certain
of what is going to happen in terms of the evolving threat and we can never be
certain what is going to happen in terms of evolving technology, so we have to
be prepared to be flexible. The sort of
exercise that we have been undertaking will not be the last, and it should not
be the last in my view, and we should continue to be alert and flexible and
take the responsible decisions that we need to take at any one time.
Q299 Chairman: Okay, thank you very much. I
was remiss at the beginning because while you, quite rightly, drew attention to
the death in Afghanistan yesterday, and also brought us in mind of the previous
deaths that have happened this week and over the course of the entire campaign,
and you were quite right to do that, I also should have said at the beginning
welcome to the Committee because this is your first appearance in front of us,
and to do it so soon after you have got into office may be difficult, it may
not be, I do not know, but you have come with a cast of thousands to support
your appearance, so welcome to all of you.
As you rightly say, this is not the final word in the equipment
examination. In the statement itself it
said that there would be further announcements made as a result of the planning
round 2009. What sort of announcements
do you expect to make? Do you expect
there to be major changes in the equipment programme as a result of planning round
2009, in the spring perhaps?
Mr Davies: We made that
statement to provide, as I say, for the necessary flexibility and to recognise
that these matters are uncertain and we have to continue to keep them under
review, not because we have in mind any specific new, dramatic announcements.
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
document 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 circumstance 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 theoretical 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 ten, 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 provide 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.
Q320 Mr Crausby: And what about the loss of specialist skills, are we assured ---
Mr Davies: There will
not be any loss of specialist skills because, as I have explained, all we will
be doing is flattening that peak, which would be met partially by overtime and
much more by contract labour or by short term-labour. That is not the sort of labour which carries
the specialist skills. I can repeat to
you what we are trying to do is to produce a solution which makes sense in
financial terms. It has no defence costs
to the nation. We are not losing any
defence capability. That is very
important, and I have already made that point, and it also does not have
industrial and employment costs.
Q321 Mr Jenkins: Minister, when you talk about peaks and costs, etc., you and we are
quite aware that it is not the peak, it is the area under the curve that gives
us the total cost. We are saying at the
present time that the area under the curve is growing and the cost is going to
grow; so that is the reason we are asking you these questions. Not the exact number of pounds but the fact
it is going to grow means that somewhere along the line something else is going
to be displaced. That is why we ask the
questions.
Mr Davies: I do not know
whether that was a question or a comment, Chairman.
Q322 Mr Jenkins: It was a comment, just to let you know that we are aware exactly
what the curves represent.
Mr Davies: All I can say,
Mr Jenkins, is that it is quite sensible, it seems to me, to make sure that we
schedule our expenditures in such a way that we are able to meet our in-year
financial restrictions, and if we can do that, as I say, without damaging our
defence capability, then that is something which responsibly we should do.
Q323 Mr Holloway: Some of this feels a bit
like an MBA master class! In that vein,
have exchange rates made any sort of difference to the maths of your major
projects?
Mr Davies: Exchange rates are a problem in certain areas of defence certainly,
not just in defence equipment and support.
In the case of the carrier ---
Q324 Mr Holloway: I do not mean the carrier, I am broadening it.
Mr Davies: I am going to
ask General Sir Kevin to come in on this because he of course is managing the
Defence Equipment and Support Organisation and sees the impact of these changes
in exchange rates the whole time. There
are some projects where clearly we have a contract which is nominated or
partially nominated or is exposed to dollars or euros, so inevitably we find
ourselves in a situation in which we are not immune to exchange rate
fluctuations. Indeed, that is one of the
aspects of the defence budget, taking the whole budget, the operational as well
as the equipment and support budget, which often makes it quite difficult to
predict even a few months ahead exactly what our financial position is going to
be. Kevin, would you like to say a few
words about that?
General Sir Kevin O'Donoghue: That is absolutely right. We try to
place contract where we can in sterling and then the contractor/industry bears
the exchange rate challenge. Some of
them are in euros and some of them are in dollars. You may have seen the second quarter report
from the Ministry of Defence for this year.
There is a potential cost overrun/cost increase in projects and that is
virtually all the exchange rate in this current year.
Q325 Mr Holloway: What sort of figure is that?
General Sir Kevin O'Donoghue: I think it is
about 60 million.
Q326 John Smith: Minister, can we now conclude emphatically from your reply on the
announcement on the carriers, five months after the original decision on the
contracts in July, that the principles of smart procurement under the Strategic
Defence Review have been abandoned, because the whole point of the new approach
to procurement was that we would front-load investment and we would put much
more effort into planning before contracts were announced, precisely for the
reason that there would not be changes in terms of cost and in-service
dates. You said that because you have
come on board with your new team and you are not sure what your predecessor
said that you have had another look at this contract. Have you announced a new approach to the
procurement process?
Mr Davies: No, not at
all, and I think there may be some confusion, Mr Smith, because, as you rightly
said, one of the aspects of smart procurement was to spend rather more money on
taking the technical risk out of particular projects earlier on during the
assessment phase, so one might spend more on assessment and more on design
rather than having a nasty shock later on when you had accepted specifications
and you had given a contract to a manufacturer or to a lead prime contractor,
and then suddenly you ran into technical problems. That remains the position; that remains the
philosophy. Exactly how you strike that
particular balance is an interesting case in each individual instance, but we
are very alive to that kind of trade-off, and we remain committed to the
principles that you have just enunciated in the smart acquisition
philosophy. There was no element of that
in the carriers decision at all. We have
not run into technical problems. It is
not because we did not spend enough money designing the carriers. We actually produced a very robust design of
the carriers. Thales did a brilliant
job, I think, and came up with something which, as you know, the French
Government also bought because they thought the design was so good. It is nothing whatever to do with that. We have not found that there were any inadequacies
at all - is that right, General?
General Sir Kevin O'Donoghue: That is right.
Mr Davies: --- In the
design which we carried out. We spent a
lot of money at the front end exactly in line with smart procurement, so we
explicitly followed the principles that you have just very lucidly set out and
reminded us of. It was a quite different
issue, the issue that I have described already, where I looked at the whole
financial profiling to see whether that was really rational in terms of the
optimum expenditure of our defence budget this year and the coming two
financial years, and that is the basis on which I decided that we should re-profile
those expenditures. It was nothing to do
with technical problems at all.
Q327 Chairman: Minister, a final question on carriers. You are talking in terms of re-profiling the
money. If you look at it from the point
of view of industry, they need to work out how to keep teams together. As I understand it, there were two phases: the
design phase and the production phase.
Is there going to be now, as a result of last week's announcement, any
gap between those two phases and how, if there is, are they going to keep those
teams together? If there is not, are
those teams stretched out going to be viable?
Mr Davies: Let me try
and observe your strictures, Chairman.
The answer to your first question is no and therefore the second and
third questions do not arise.
Q328 Chairman: Will those teams be viable if they are stretched out in the way that
you have explained?
Mr Davies: Indeed they
will, and I think I have already explained in my description of the graph that I
have tried to project verbally that the core skills will continue to be fully
employed. This whole issue has been the
subject of detailed discussions between ourselves and the companies concerned.
Q329 Chairman: Okay. I want to move on to
FREZ, but I want to do so in the light of your interesting observation that
because you have only come on board in the last two months, there is no
responsibility for what has gone before.
You are answering for the Ministry of Defence here. I wonder whether you could tell us what the
initials FREZ stand for?
Mr Davies: Yes, Future Rapid
Effect System. I am sorry that it sounds
rather complicated. It might be easier
to say "new generation of armoured vehicles", but sometimes we have strange
names in the defence business.
Q330 Chairman: In view of the decisions of last week, do you think that is an
appropriate name still?
Mr Davies: I have
inherited these terms, Chairman. I have
had a number of things to focus on in the last two and a half months and so I
have not regarded it as one of my personal priorities to go round renaming
things; it might cause more confusion. I
do sympathise with you in the difficulty, which I am sure is not unique to
yourself, in understanding why we sometimes have these slightly complicated
names.
Q331 Chairman: Can I read a sentence from our report on FREZ which came out nearly
two years ago: "This is a sorry story of indecision, constantly changing
requirements and delay." That is
something clearly with which your fellow minister, the Minister for Veterans,
agrees because he was member of the Committee that produced that sentence. Do you agree with it?
Mr Davies: Chairman, I
never accept or reject statements which I cannot read in context. I think I should need a little notice in
order to be able to read the context in which you say this in order to be able
to accept the particular language which you have quoted.
Q332 Chairman: Well, in those last two years things have not got better for FREZ,
have they?
Mr Davies: Let me try,
as I am trying to do throughout this session, Chairman, and be as helpful to
you as I can on that. FREZ was conceived
back in the 1990s as - and let me use this perhaps rather more understandable
language - a future family of new armoured vehicles. It is family because the idea was that there
should be maximum elements of commonalty in the actual vehicles, and that would
lead to savings, to financial or economic synergies but also to training
synergies, so that someone who had been trained on one vehicle could get into
the cockpit of another with minimal additional training and feel happy in
operating the systems.
Q333 Chairman: Okay, you have abandoned that maxim of elements of commonalty, have
you not, because of the procurement process that has been going on for the last
two years?
Mr Davies: Perhaps I
could explain what has happened. We had
a family of vehicles; we still have a family of vehicles. Initially, we thought that the FREZ utility
vehicle was probably the priority, and we proceeded on that basis to first of
all go out to tender for design contracts and then to negotiate and to award
the preferred bidder, or provisional preferred bidder status as it turned out
to be.
Q334 Chairman: Can we come on to that, please.
How has that worked exactly? In
November last year you down-selected from three to three.
Mr Davies: Three to one,
yes. Oh, in May this year ---
Q335 Chairman: No, in November last year you invited three different potential
bidders ---
Mr Davies: Precisely.
Q336 Chairman: --- to produce their binding undertakings, I think. You knew that one of them, which was General
Dynamics, was non-compliant in terms of intellectual property; is that
right?
Mr Davies: Not entirely
right. General Dynamics always made
clear that they had a different concept than we did as to the role they wanted
to play. We made clear that their
concept was not ours and their concept was not the basis on which we were going
to let the contract. They decided
however to bid, making it quite clear that they had a different concept. The basic different concept, as you say,
related to the fact that they wished to continue to have the intellectual
property and they wished to be responsible, if they got the design contract,
for the development and manufacturing, or at least to have a share in
that. That is a perfectly understandable
business approach and we had complete respect for it. They nevertheless decided to go on bidding
when we had not accepted that approach.
Q337 Chairman: So you accepted in November that they were bidding on that basis?
Mr Davies: Yes, that is right. We thought if they get the preferred bidder
status maybe they will come round to agreeing to work on the principles of the
contract.
Q338 Chairman: What on earth was the basis
for thinking that?
Mr Davies: We left it
open to them, it was up to them to choose.
Q339 Chairman: But you chose them when you knew that they were not prepared to give
up the intellectual property.
Mr Davies: Not at all, we
did not, Chairman. What we did was we gave
them provisional preferred bidder status, and we made it clear to them that we
were making it provisional because confirmation of their status was entirely
contingent on our agreeing on commercial terms that would be acceptable to us.
Q340 Chairman: So what were the negotiations that happened between November and
May?
Mr Davies: I do not know
that there were negotiations between November and May. What happened was the bids came in between
November and May and bids were being prepared, and we selected the General
Dynamics bid, but we said, "We cannot give you preferred bidder status because
we have not agreed on the commercial framework within which we are going to
operate with you, so we cannot make you the preferred bidder, we will make you
the provisional preferred bidder, and we will see now whether we can agree on a
commercial basis for going forward business which is acceptable to both of us." We failed to do that. There were a number of discussions going
through the summer with them. I will ask
Mr Morse, who was involved in these discussions, to say a few words in a few
moments about it to fill in what I am saying, but on the basic principle we
were absolutely straight with them and transparent throughout - and they would
not for a moment, I am sure, deny that - and they were absolutely straight and
transparent with us throughout. I am
glad to have the opportunity to confirm that in case there is any doubt in
anybody's mind. It is perfectly
reasonable for one of two adult parties to say, "We would like to work with you
on this basis," and the other party to say, "Well, would like to work on a
different basis." You proceed to go
through the technical design and so forth and discuss other matters, but
leaving aside for a moment the commercial framework within which a contract
would ultimately need to be signed. That
is the principle. We then spent several
months after May seeing if we could reconcile our concept, our perception of
how we wanted to go forward with General Dynamics. I can explain to you why we took the line we
did if you want me to go into that.
Q341 Chairman: What I would really like to know is why, knowing that they had this
issue over intellectual property in November, they were chosen as the
provisional preferred bidder in May without that issue having previously been
cleared up?
Mr Davies: I think it is
very sensible, Chairman. It is perfectly
possible, we could have said ---
Q342 Chairman: You think the decision in May was sensible?
Mr Davies: Yes, I do
think so.
Q343 Chairman: Even though you have abandoned it now?
Mr Davies: Absolutely,
Chairman. It is perfectly theoretically
possible for us to have said at the beginning, "Sorry, unless you now sign up irrevocably
and say you accept our commercial framework, we will not entertain your
bid. We will not look at anything you
send us. We will not even consider your
design." One could have said that but I
cannot for the life of me see why it would have been in the interests of
British defence procurement to have taken that line.
Q344 Chairman: Because you have taken it now.
Mr Davies: No, no, no,
on the contrary, we have simply said, "Your perception of the commercial
arrangements are not the same as ours. By
all means, if you want to, go on bidding and then we will resolve the matter
later on, but if you do not want to bid now because you know where we stand on
these matters, that is your choice as well."
They chose freely to go ahead and bid.
We respected that decision. We
looked at their bid. It was accepted
conditional on subsequent agreement on commercial terms. Having postponed the commercial discussions,
because that is the way the company wanted to play it (and we saw no reason why
we should not play it that way, and everybody was being completely honest and
transparent with everybody else) we then tried, in good faith, to see if we
could reach agreement with them commercially in the course of the summer, and
we failed to do that. Both sides, with
no ill-will, in total transparency and with good faith decided then that we did
not have a basis on which we could proceed commercially. That is the position we found ourselves in
last month.
Q345 Chairman: No ill-will? Are you paying
General Dynamics any amount of money to keep their teams together?
Mr Davies: Going forward
we have not made any commitments at all, Chairman. We are considering how to proceed with the
utility vehicle now. We could not do the
deal with General Dynamics, and I think we were right not to do the deal with
General Dynamics, on General Dynamics' terms.
We have to be quite robust about this in defence procurement. We have to be quite careful about how we deal
with people. We have to make sure that
we get the full benefits of competition or, if we cannot get competition, we
have sufficient cost discipline in the system to protect our interests or
protect the interests of the taxpayer, and General Dynamics understand that.
Q346 Chairman: Are you considering paying General Dynamics an amount of money to
keep their team together?
Mr Davies: We are
considering going forward on a number of possible bases. We are committed to this project. We are committed to providing the British
Army with a utility vehicle. It will not
come forward in the timescale which it was originally intended to do, that is
perfectly true, but we are not abandoning this project. At the moment, in the light of the failure to
reach agreement with General Dynamics, we are considering a whole range of
possible ways forward. We have reached
no conclusions. I am concealing nothing
from you at all. It will take a little
bit of time for us ourselves to decide how to go forward and to prepare our positions
for discussions with eventual contenders for the design and manufacture of the
vehicle.
Q347 Chairman: Do you think money rather than work would keep a General Dynamics
team together?
Mr Davies: Chairman, I
have not had these discussions with General Dynamics. It is premature to ask me questions like
that. I do not know how we are going
forward. I do not know who we will be
discussing this matter with going forward, but we have said to General
Dynamics, and I can repeat it now to you for the benefit of the Committee if
you like, that if we go forward with this project as we are intending to do, we
would welcome bids from General Dynamics on whatever basis we feel we can
invite such bids in the future. We have
not taken any decision as to such a basis and I cannot predict what that basis
would therefore be. Obviously you are
very interested in the details of this - and I quite understand that, it is a
very important project - and, if I might, I would ask Mr Morse to add anything
that he thinks is relevant so as to give you as complete a picture of this
matter as we can.
Q348 Chairman: Mr Morse, is this the most disastrously managed programme of Ministry
of Defence history?
Mr Morse: I am not in a
position to make that relative judgment, Chairman, and you would not really
expect me to, I am quite sure.
Q349 Chairman: So that is not a no?
Mr Morse: No, it is a
statement that I cannot answer the question.
Q350 Mr Havard: It will be a Christmas
number one!
Mr Morse: If you would
like me to comment on the discussions with General Dynamics, I am willing to do
that, of course. I was involved (not on
my own) in having discussions over the last months with General Dynamics.
Q351 Chairman: When did you begin? When did
you become involved in it?
Mr Morse: I personally
became involved in those discussions in October, I think it is probably true to
say. There had been previous continuous
engagement with them by our teams, but I became involved with another senior
official in October. We met and we had
very frank discussions on both sides. I
think both sides tried to explore ways of being flexible and seeing if it was
possible to make this thing work to our mutual satisfaction. As it turned out, the group had a very clear
view of their business philosophy. Did
they have such a clear view or was it clear to us just what that view was at
the beginning? Perhaps not.
Q352 Chairman: Why was that not clear because had they not been making it clear for
several years?
Mr Morse: I think it
was really a question of how absolute that position was.
Q353 Chairman: In other words, you thought that you could tell them to do something
that they had been telling you they would not do?
Mr Morse: No, I do not
think that is a fair characterisation of it; I really do not. I think we had had much more engagement than
that, but when it came to the final decision, they took a particular line.
Q354 Chairman: That was the line that they told you they would take in November.
Mr Morse: No, that
would be very much overstating it. They
indicated a reservation at the beginning.
We had good reason from our earlier discussions to believe that it might
be possible to develop a solution to our mutual satisfaction. As it turned out, that did not happen, but it
was not because we had not thought about it or had not tried to make sure the
discussions had a good chance of success; actually we thought they did.
Q355 Chairman: Why?
Mr Morse: And, by the
way, I think they thought they had a good chance of success as well. I am not
talking around the point at all, Chairman.
What I am describing is we had a commercial negotiation with them and we
entered into it in a belief that there was some common ground that we could
establish. That was not an unreasonable
expectation, to be quite frank. I am not
going to go into every single commercial detail. I do not think that is appropriate because we
are hoping, as the Minister has said, to do business with them in future, but
it turned out that, although every effort was made to work out something
between us, that was not possible.
Sometimes that happens in negotiations.
Mr Davies: Chairman,
perhaps I can just summarise this by saying that I am quite confident (although
of course I only came on the scene relatively late in the day) that there is
nothing whatever in the story to the remotest discredit of either party
involved. Both parties had different
concepts of what they were prepared to do in terms of establishing a commercial
relationship. Maybe both parties thought
that the other party might change his mind; that is natural, you cannot exclude
that. That actually did not happen and
we both recognised that our positions at the end of the day were not
reconcilable. As Amyas Morse has just
said, we both hope that in future we will be able to do business in different
contexts, and if there is some sort of new competition, some opportunity to get
involved in the UV, as I trust there will be, we certainly hope that General
Dynamics will want to be a candidate for that.
I have discussed the matter with Mr Wilson, the Chief Executive of
General Dynamics and with Lord Levene, the Chairman of General Dynamics, and I
am quite confident that they share my perception of that and they would endorse
what I have just said. There is no skin
off anybody's nose in this particular context.
That is life, that is business.
People have different perceptions of how they want to resolve a
particular business problem; they cannot resolve it and so they decide to walk
away from that particular deal on that particular day.
Q356 Mr Jenkin: Meanwhile, British Aerospace have announced that they are reviewing
the existence of their land systems unit, so there is the prospect that we will
actually lose the capability of building armoured vehicles in the UK altogether. Does that matter?
Mr Davies: Mr Jenkin, I
think you have got to make quite clear what is being suggested and what is not
being suggested. What we set some store
by is having prime contractors in this country available to us with the design
authority for their particular products.
We are not concerned really with whether they sub-contract or
sub-manufacture particular elements of their armoured vehicles in South Africa, or Sweden, or somewhere else; that is
perfectly acceptable to us. We do not
take a simple-minded, protectionist approach to that. What we need to have is a relationship with
the prime, a relationship with the design authority. We need to have someone who can take
responsibility not only for producing the vehicles we want, but for upgrading
them, for maintaining them, for subsequent technology insertion, and that we
and they (they being directly dependent on us in a contractual relationship)
are masters of the relevant technology.
That is what we require and that is what I believe we will continue to
have going forward.
Mr Jenkin:
I think that was a "no, it does not
matter".
Q357 Mr Havard: FREZ was going to be a
family of vehicles. You talk about the utility
vehicle, and that is what you have just been talking about. I need to try and get a picture of what
vehicles are going to be available. We
have Mastiff, Bulldog and Jackal, we have all these other vehicles being
bought, so we are acquiring a family.
That is not a family that is necessarily coherent in the sense of spares
and all the other things, but nevertheless a collection of vehicles, and within
that is Warrior. A lot of these new
vehicles are going to replace these things.
You talk about the utility vehicle and you were also talking about the specialist
vehicles. Apparently they are going
terribly well. What is in the specialist
vehicles? Is there an engineering
variant? Where has that gone? You are talking about the scout vehicles certainly. Where is the direct fire vehicle? Where does Challenger fit in with FREZ? Where is the system of systems? Essentially, a family is a collection of
disparate individuals; it is not a system; and it is not a strategic view, in
my opinion, so where has the strategy for mobile armour gone in terms of how
you are contracting for FREZ?
Mr Davies: Mr Havard,
there obviously is some confusion here because I did not suggest, and would not
suggest, that all the armed vehicles you have listed - and you have listed
about half the armoured vehicles in the British Army - are all part of a
particular family in the way in which I defined it. That of course is not the case. It might be an idealised version of something
which you might dream of but that is never likely to be the case. After all, Challenger 2 derives from the
1970s; the Warrior derives from the 1980s.
It is still a very, very fine vehicle and we are upgrading it, by the
way, that is one of our current priority programmes that we are bringing
forward.
Q358 Mr Havard: I am aware of that.
Mr Davies: Some of the
other vehicles that you have mentioned have been procured with modifications
but procured off-the-shelf, very rapidly, because they are best adapted to the
---
Q359 Mr Havard: I am aware of that as well,
but my point is how does this make a coherent, strategic approach to all of the
other procurement activities that you have in relation to providing armoured
vehicles on the ground, maintained in a consistent fashion?
Mr Davies: Right, well,
the coherence lies in having the widest possible suite of weapons for
commanders in the field to choose from.
You have just yourself given a whole list of vehicles, some of which may
be five tonne, some of which, if you go up to Challenger 2, for example, go up
to 70 or 80 tonnes, and for Warrior perhaps half of that figure, so you have
got a very, very wide range of vehicles which commanders can draw on, taking
into account the particular circumstances in which they need their operational
capability.
Q360 Mr Havard: I am aware of all of that
but that brings with it a logistics burden as well, does it not, because you
have got to supply a lot of parts and different people and different training
and different ways of operating. Where
has that gone because I thought this was going to be a system of systems that
integrated with network-enabled capability?
The strategic view seems to have gone in the bin because of expediency.
Mr Davies: If expediency
means rapid reaction to immediate, pragmatic requirements, then expediency is a
good and necessary thing and something which I regard as a virtue in this
matter. If you like to use the word
expediency in the way that I have defined it, we have expediently and
pragmatically, and I think very sensibly and effectively, procured off-the-shelf
and very rapidly precisely the vehicles ---
Q361 Mr Havard: I am not contesting the
fact that we have got operational requirements and we bought these vehicles; that
is not my point. You are setting out
your view of what the strategy should be and what the procurement policy is
going forward for enabling people in the Army to have these types of vehicles.
Mr Davies: Yes.
Q362 Mr
Havard: It seems to me that for whatever
reason you have not got a plan to actually get back on track with that because
all the time all I hear is we are going to patch up what we have got, we are
going to buy more operational requirement vehicles and so on; if that is the
case then let us do that in a consistent way and let us forget about building a
utility vehicle, let us buy somebody else's and let us amend them then, because
that is what you are doing day to day.
Mr Davies: Mr Havard, I hope that you are not suggesting, because obviously I
would not go along with you if you were suggesting, that when we have an urgent
operational requirement in theatre instead of buying the capability which we
need ---
Q363 Mr
Havard: No, that is not what I am saying at
all. You are avoiding the question.
Mr Davies: - as urgently and as rapidly as possible we should go back ---
Q364 Mr
Havard: There is no coherent plan it seems
to me and I have not heard you come out with one yet. You tell me that the specialist vehicles
thing is going swimmingly well, I have absolutely no idea what that means
because I was told something similar about the utility vehicle in the very
recent past. Is there going to be an
engineering variant, when is the Scout vehicle coming along, how is it going to
work and when is it going to work?
Mr Davies: Mr Havard, so far I have not been able to finish a single sentence,
but if you ---
Q365 Mr
Havard: You make them so long you see and
you divert first of all - I do not want completeness, I want an answer.
Mr Davies: I am going to try and give you an answer but the main obstacle so
far to my giving you an answer if I may say so has been the fact that you
prevented me from completing my sentences.
But there is an engineering vehicle, which is Terrier; there is a
reconnaissance vehicle which is one of the really urgent requirements that we
are going forward with as rapidly as possible.
From the political and financial points of view we are going to produce
this reconnaissance vehicle with the maximum despatch. There are only, therefore, technical issues
about the speed with which this can come into theatre and I will ask General
Kevin a word or two about that in a second, it is enormously important. We have to strike a balance here; I go back
to my business of balances. We have to do what we can for the theatre, for the
operational requirements, as rapidly as we can.
We have been fortunate enough to find off the shelf, with some
modification in some cases, but a very rapid modification, a series of armoured
vehicles and protected personnel vehicles which really do correspond
extraordinarily well to the specific requirements of this insurgency in Afghanistan. We have purchased them and you know about
that.
Q366 Mr
Havard: I do.
Mr Davies: That does not mean to say we are neglecting the long term major
structural requirements of the British Army and that is why we continue to be
committed to the FRES programme as well, so there is no inconsistency between
the two, there is a large element of pragmatism and expediency and I think
those things are very desirable in the circumstances. Would you like to add anything on that?
Q367 Mr
Havard: Before you start, are you going to
give us a date for when it will be happening?
General Sir Kevin
O'Donoghue: We are almost ready to go out to
industry to seek bids for the Scout vehicle.
I cannot give you a date because until you go out and ask industry what
sort of timescale they will require to deliver something I cannot give you a
timescale.
Q368 Mr
Havard: But you are about to offer it out
soon.
General Sir Kevin
O'Donoghue: Soon.
Q369 Chairman: Minister, can I read out a sentence that you have just said to us because
it struck me as so extraordinary that I want to pursue it. You said, in answer to Dai Havard's point,
"The coherence lies in having the widest possible range of weapons that
commanders in the field can rely on."
Surely that wide range of weapons is precisely the thing that destroys
the coherence.
Mr Davies: Coherence is not something we pursue for its own sake, just for the
sake of neatness and having a nice inventory that looks good on paper,
coherence is what we want to have where the capabilities of the various
vehicles are complementary so that you can move across a spectrum, going from
heavier to lighter, going from greater firepower to less firepower, going from
faster to not so fast, for difficult terrain, less difficult terrain, so that
you have the widest possible scope for choosing the vehicle that you
really need for that particular
operation. That is what we are trying to
give commanders in the field and that is what I mean by coherent so that each
particular platform relates to the others in the sense that it is
complementary, it is not if you like duplicating the capability of the other
one, it is expanding the full range of capability available to us. I would like if I might, Mr Arbuthnot, just
to ask General Figgures to say a word about this whole issue - because he is
responsible after all for equipment capability - and how we see our future
requirements in the armoured vehicle and protected vehicle area.
Q370 Chairman: General Figgures.
Lieutenant General
Figgures: Thank you, Chairman. If I could perhaps address my remarks to this
question of the family of vehicles; yes, Mr Havard is quite right that when we
set out on the concept phase of this we anticipated that we would have one
common chassis on which we would build our various subsystems to reflect the
requirements for each function. Further
work suggested that this perhaps was not going to be the solution, but we would
perhaps have to run with two chassis types, we would achieve our commonality
and the logistic coherence that he describes through having common subsystems
and this would be part of a network-enabled capability. Whilst it is treacherous sometimes to use
analogies, effectively the network-enabled capability is rather like the nervous
system in the body, so if we were thinking about teeth, it would be the nerve
in the tooth, so we would have the common network which would be implemented
right across these "FRES" vehicles although they would have different chassis
systems. We would attempt to have common
generators where appropriate, we would have common radios, we would have common
electronic counter-measures, we would have where appropriate to reflect the
function of the vehicles common subsystems in terms of sighting and so on. So that is how we were going to achieve it,
although because the chassis did not look precisely the same did not mean that
we were going to give up this original idea but we were going to optimise it,
there were trades and balances in this.
Coming on to Mr Havard's point about the functions that each of these
parts of the family were going to deliver, yes, the utility vehicle would carry
an infantry section but there would be a command vehicle, there would be a
vehicle in which we would put our communications, there would be a vehicle
perhaps in which we would put our electronic support measures, there would be
an ambulance vehicle, there would be a vehicle in which we mounted the
anti-tank guided weapons and fire support weapons. The question we then had to ask was how much
variation was tolerable, indeed affordable, in doing that. Equally, on the
specialist vehicles from which we were going to get the reconnaissance
vehicles, yes, we would have a close reconnaissance vehicle, we would need a
formation reconnaissance vehicle - they may look very similar but their
internal sensor fit and so on might be different, there would be a command
variant, there would have to be an ambulance variant to support it. That is how we propose to do it, so whilst it
may appear without the necessary supporting detail that we have thrown all our
good ideas out of the window, we have not and of course it is not without some
difficulty that you can get people to supply all this. I hope that clarifies it.
Mr Havard: They have not got a clue what they want.
Q371 Chairman: This difficulty has been going on for decades now. One of the main issues is getting the
Ministry of Defence to decide what it actually wants.
Lieutenant General
Figgures: If I may, Mr Arbuthnot, capability
(which I plan) is a relative notion; you cannot stand still in time because the
enemy has a vote in this and I think in a previous session with this Committee
we have addressed this issue of how capability has to change, the fact that our
original view with respect to FRES was that perhaps it had to be proof against
kinetic energy rounds in preference to chemical and improvised explosive
devices. Our experience in Iraq and Afghanistan has demonstrated that
we have got to shift that balance. That
is an increasingly complex requirement to meet, and we have found - our allies
have found - that you cannot necessarily buy these things straight off the
shelf and, indeed, these urgent operational requirements to which the Minister
refers have had to have some considerable modification to what comes out of the
factory gate.
Q372 Chairman: Okay. We ought to move on
from FRES because we have probably spent quite enough time on it. Vector: is Vector unable to take the
weight? Is it unable to operate on rough
terrain? Does it keep breaking its axle?
Lieutenant General
Figgures: I will pick that up if I may. Vector was introduced as you know, as an
urgent operational requirement. Yes, we
have had some problems with it, yes it is a combination of all up weight,
cross-country performance and, like many of these things, you do not get a
perfect solution, and so that is why we are constantly looking ahead in terms
of protected patrol mobility and the utility vehicles necessary to support it
to see what other options there are.
Some of these solutions have not been perfect.
General Sir Kevin
O'Donoghue: You produce a solution for the
requirement of the time; the requirement changes as the threat changes, as the
security architecture changes and you need to produce something else. Quite rightly, Chairman, there is only so much
weight you can put on a particular chassis and when you reach that weight limit
you either have to have something bigger
and more powerful or you have to have a different form of protection, which it
would be inappropriate to go into, but things change.
Chairman: Moving on to the Future Lynx programme, Adam Holloway.
Q373 Mr
Holloway: Minister, with reference to the
capability that is being filled by Future Lynx you referred earlier today to
"simple-minded protectionist approaches" and also to the "full benefits of
competition". Do you think that you are
getting the full benefits of competition in this particular programme?
Mr Davies: This is a partnership programme, Mr Holloway, as you know. These are two broad categories and there are
hybrids between them.
Q374 Mr
Holloway: I can understand that.
Mr Davies: It is reasonable to distinguish between classic competitive
contracts - where we simply go to the market and say this is our requirement,
we get in bids and we negotiate the price and sign a contract - and partnership
arrangements where we actually agree with a particular group of manufacturers,
or perhaps one manufacturer in certain cases - and probably this is appropriate
in areas where there is quite a high technical risk - that they will work on
reducing the risk, they will take some of the risk, we will take some of the
risk, we will typically have a target price with incentives for doing better
than that, penalties for doing worse than that, so that we share the risks
right the way through. This falls into
the partnership area. I did actually
look at competitive solutions and you might be interested in this since you
raise this matter. Maybe I horrified
certain people when I asked for a study on this subject, but I did say do we
really need Future Lynx, is there perhaps an off-the-shelf solution here. I asked for a small study to be done looking
at Black Hawk - Black Hawk of course is a workhorse for the US Army that has
been around for a long time - because I wanted to have a check as it were against
the other proposal that we should go ahead with Future Lynx. I was dissuaded, Mr Holloway, and that
actually Future Lynx was the right solution.
First of all I was persuaded that we needed the same helicopter, the
same basic structure of helicopter for the naval and battlefield roles and,
secondly, I was persuaded that actually we did have a good deal. I was actually quite surprised at how
expensive the Black Hawk solution would actually have been. Like other people coming fresh to this
particular field one tends to think that as the Americans have these very long
production runs automatically their prices are going to be cheaper, but I am
not sure that actually American defence procurement is always quite as
efficient as it is sometimes made out to be and sometimes what you might think
plausibly would be the position does not turn out to be. I am therefore very confident that we have
gone down the right road here and that we are going to get the right capability,
and it is one that of course is directly engineered, really specified for the
particular requirements of the Royal Navy and the British army.
Q375 Mr
Holloway: Your written Ministerial Statement
referred to the even greater operational capability; how many of these aircraft
are you settling on, what will they cost and when will they be ready?
Mr Davies: Let me take those questions in order. The answer to your first question is about
60, the answer to the second question is that we do not know, we have not
decided, we are discussing this matter with the company. We do not produce in service dates until we
have actually got through main gate and we are some way away from doing that,
so I cannot answer that.
Q376 Mr
Holloway: Roughly.
Mr Davies: We do not want to lose any time on this but there are some technical
issues to be resolved. I do not know,
Kevin, whether we could have a stab at that.
As a matter of principle, Mr Holloway, we either have in service dates
or we do not; we do not have in service dates until we have been through main
gate and I am always very reluctant to give my personal estimate as to what an
in service date might be before we have even looked at main gate because we do
not necessarily know all the variables which are going to determine the answer
to that question. I am cautious about it, but if General Kevin wants to make a
stab at something I am very happy for him to do so.
General Sir Kevin
O'Donoghue: We are through main gate, Minister,
on Future Lynx.
Mr Davies: We have not placed the contract yet.
General Sir Kevin
O'Donoghue: We need to now discuss with the
company exactly when these aircraft will come in.
Q377 Mr
Holloway: Roughly.
General Sir Kevin
O'Donoghue: I need to come back to you on this.
Q378 Chairman: Could you explain this principle of not giving in service dates
until you have gone through main gate?
Mr Davies: The point is that until we have gone through main gate we have not
had the negotiations with the company, we have not fixed on the price, we have
not fixed on the terms of the contract so we are in a very bad position in
order to be able to say what it is. We
are hoping it is 2014, January 2014.
Q379 Chairman: The principle of not announcing in service dates until you have
gone through main gate obviously does not apply in this case where you have
gone through main gate, but if it is to reduce the uncertainty - which we saw
remained even though you did go through main gate with the aircraft carriers -
what is the point in preserving this principle that you do not give industry an
idea of when they need equipment to be in service by?
Mr Davies: We may well give industry that idea; when we are having discussions
with industry about almost any project the timing comes into that because we
need to take into account the technical risk, we need to get their assessment
of what the technical risk is, of how long it will take to resolve it. We obviously tend to have a requirement that
means we want the capability available as soon as possible but there is a
dialogue on that matter, Mr Arbuthnot.
It is not always very sensible, while we are having that dialogue with
industry, to make a public statement about these things because it pre-empts
some of the discussion with industry.
There may also be cases where there is a trade-off between price and
delivery time and we do not want to lose the flexibility of our commercial
negotiations.
Q380 Chairman: But that is precisely what you did with the aircraft carriers.
Mr Davies: In the case of the aircraft carriers it was not a competitive
contract of the kind I have just described, it was one of these sort of
partnership contracts.
Q381 Chairman: That makes a difference, does it?
Mr Davies: It can make a difference, yes; it can certainly make a difference.
Q382 Chairman: We will move on to one other set of aircraft issues, the A400M
aircraft: are they going to have full defensive aid suites?
Mr Davies: The answer is yes.
Q383 Chairman: All of them?
Mr Davies: The ones that we are employing in theatre, certainly, because we
make it a principle that we do not fly troops, personnel, indeed civilian
personnel - even ministers, though that may be controversial - into theatre
without defensive aid suites. The only
aircraft we fly into theatre without defensive aid suites would be aircraft not
owned by us and carrying freight not human beings.
Q384 Chairman: So you might be buying some A400Ms that do not have full defensive
aid suites on the basis that they would never fly anywhere into danger, is that
right?
Mr Davies: Mr Arbuthnot, we need to take that decision nearer the time. We are sadly -sadly - some way from an in service
date for the A400M. That itself is a
difficult matter at the moment on which we are focusing, so we are some way
down the road from deciding that. I have
just given you the general principle and it is a very important general
principle. In so far as we were clear
that some A400Ms would not need to fly into theatre maybe we would not need to
fit the defensive aid suites, but we would have to take a view as to whether it
would be sensible to have some aircraft, maybe just for training purposes, where
we did not need that. It is a decision we have not taken yet.
Q385 Chairman: So the answer to you might be having some A400Ms without defensive
aid suites is a yes.
Mr Davies: It is possible.
Q386 Chairman: The fuel inertion system that is currently being fitted to the
C130s and others, is that going to be put into the A400Ms?
Mr Davies: The same principles apply to the fuel inertion system and also to -
because you are probably about to ask me about that too - to the explosive
suppressant foam.
Q387 Chairman: I was.
Mr Davies: Yes. The same principles
apply in all three cases because obviously the three cases are very analogous
and the same issues arise.
Q388 Chairman: What about the Chinook helicopters that have just been made
available to go to Afghanistan, will they have fuel inertion system?
Lieutenant General
Figgures: They have the pannier tanks, the piano
hinges and they have got self-sealing tanks so the business of catastrophic
failure through fire would appear not to be the same as on a large fixed-wing
aircraft; there is a balance of risk there, but we constantly review where to
strike that balance. If we felt as a
result of this constant assessment that it was necessary to do it we would have
to do it, although again we may not do it in quite the same way. Currently we believe we have reduced the risk
sufficiently through the self-sealing tanks and the fact that they are on
panniers outside. When you have an
enforced landing the tanks fall off and so reduce the danger of a catastrophic
fire.
Q389 Chairman: Was it a balance of risk that decided the Ministry of Defence not
to fit explosive suppressant foam into the Hercules that came down?
Lieutenant General
Figgures: I think that was the judgment of those
concerned - and I cannot speak for them because I was not there when these
things were considered.
Q390 Chairman: What makes you think you have got this decision right?
Lieutenant General
Figgures: Because I am certainly conscious of
the requirement to review this and carry out the necessary risk assessments and
carry out the necessary trials to see that we have reduced it to as low as
reasonably practicable.
Q391 Mr
Havard: Before we move on can I just ask
briefly about the A400M. If it is not
known as to when the A400M is coming we have a problem with heavy lift in the
meantime. Are we going to see
substantial refurbishment of the C-130Ks, are we going to buy more C-17s, are
we going to bring forward the air tanker programme, have you got any clue what
we are going to do?
Mr Davies: Mr Havard, you are asking a very pertinent question, a question
which is very close to my heart and which I reflect on every day. We do find ourselves in a difficult situation
with the A400M, I cannot tell you exactly what the latest delivery schedule is
- they were expecting it more or less daily from OCCAR and we do have a big
problem, we do have a big gap in the air bridge. As I said, I cannot even say how long it is
going to last because we do not know what the delivery schedule for the A400M
is. I have had conversations with
Monsieur Gallois and I have expressed myself as forcefully as I know how on
this particular subject, but that does not necessarily produce any aircraft
overnight. The answer to your question
is that all of the options that you mention are real ones that we will be
looking at. There may be one or two
others which you have not mentioned which we are also looking at, and the air
bridge is an absolute critical imperative for us. That is my attitude to it.
Q392 Mr
Jenkin: Looking at the overall affordability
of the equipment programme you will be aware that we have had numerous
representations suggesting that the Government's stated programme is actually
unaffordable, but now that you have completed this short equipment review can
we take it that all the capabilities set out in the Strategic Defence Review - the additional new chapter, the 2003
White Paper and so on - this is now an affordable programme?
Mr Davies: Yes, the equipment programme is an affordable programme. We have had to make an adjustment about
exactly the pace with which we are bringing certain things forward and, as I
have already explained, some of the priorities are being increased and others
are being set back a bit. We will always
have this, Mr Jenkin, we will never have a situation in which everything can be
afforded today, of which there are no changes in year - that just would not be
a natural situation to be in - but I believe that the equipment examination
exercise has relieved an awful lot of pressure, let me put it that way. As I said right at the beginning of our
proceedings I am not conceding from you any decision that we have taken which
is a dramatic major decision in which we are about to announce some further
delay or cut or indeed any cut in a programme, so I would hope that we would
only have to cut programmes if we really decided they were not really
necessary, really essential, in the defence interests of the nation.
Q393 Mr
Jenkin: In the Winter Supplementary Estimates you did reduce the net provision of
defence capability by UOR1 by £950 million.
That is a cut, is it not?
Mr Davies: No, it is not a cut. The
defence budget and the defence control environment equipment and support
budgets are increasing in real terms the whole time so we are spending more
money in real terms. There is no
suggestion at all - you look surprised but I assure you that is the case, there
are no cuts at all here, no cuts.
Q394 Mr
Jenkin: No cuts at all?
Mr Davies: No, we are not cutting defence expenditure, no.
Q395 Mr
Jenkin: That is not what I asked. I asked in your Winter Supplementary Estimates - this is presumably what
rebalancing means, that we are cutting investment in future capability to
support current operations. That is the
new mantra is it not?
Mr Davies: The word "cut" is the word that I am resisting.
Q396 Mr
Jenkin: It is in brackets, it is negative,
there is the number, £950 million.
Mr Davies: If the word "cut" appears there it would (a) surprise me very much
and (b) it would be some sort of mistake because it would not be an accurate
description of the position. Rebalancing
means changing the priorities; bringing some things forward; pushing some
things back. That is what we do, that is
what we will continue to do the whole time I am sure.
Q397 Mr
Jenkin: The Government's defence policy has
not changed.
Mr Davies: The defence policy has not changed, no.
Q398 Mr
Jenkin: Can you explain - I am looking at
the out of service dates and in service dates of helicopters over the next ten
years - at the moment we have 520 helicopters in the Armed Forces overall,
including the US helicopters; according to your Parliamentary answers, by 2020
we will have nearly 215 helicopters in the British Armed Forces. How possibly would we be able to support the
tempo of operations that we are currently supporting on less than half the
number of helicopters?
Mr Davies: Mr Jenkin, you are a considerable defence expert and known for that
in the House and you know the answer, I suspect, that I am about to give
you. It would be absolutely crazy to
equate numbers of helicopters with helicopter capability. A lot of the helicopters we have got in that
list which you have just mentioned will be old helicopters, Gazelles and so
forth, whose moment, with great respect to that particular airframe, has
passed. Some of the new helicopters we
are bringing on stream are vastly more capable than their predecessors. Compare the Apache, for example, with the
previous battlefield helicopters we had.
There has been an enormous increase in our helicopter capability. I am glad to say that in Afghanistan from
March last year to the latest figures I have seen, which would have been in
October or November, we increased our helicopter capability in Afghanistan by
37.5 per cent and there will be another 25 per cent increase in the coming
year, so this is what we are talking about.
Q399 Chairman: Do you know how you did that?
Mr Davies: Capability and firepower, number of hours available.
Q400 Chairman: So you flew the existing helicopters harder.
Mr Davies: We are bringing them into service - no, not at all, we have
introduced a lot of new helicopters.
Another thing which has not come out so far - I am slightly proud of it
because it is something which I took initiative on in my first week or two in
my present role - is that we are re-engining some of the existing Lynxes so as
to make sure they are available in Afghanistan on a 24-hour, 365-day basis,
which they have not been up to now. That
is very important and that is going to come through as an urgent operational
requirement to be delivered in the course of next year. There is a whole range of areas where we are
increasing genuine helicopter capability.
The stories are very upwards and onwards ones, the story is getting rid
of old-fashioned helicopters - quite rightly - obsolete helicopters, helicopters
that are much less performing and replacing them with the latest helicopters
and helicopters with the specification that we require to do the job.
Q401 Mr
Jenkin: Helicopters are also essential for
protected battlefield mobility.
Mr Davies: Yes.
Q402 Mr
Jenkin: Commanders in both Iraq and Afghanistan
have consistently complained they are not able to get enough helicopter hours,
not for hitting things, just simply for flying people around. By 2020 we will have a total of 14 Chinook
helicopters in the entire British Armed Forces.
How will that possibly be enough unless we are going to cease to
envisage conducting military operations on the scale at which we currently
conduct them.
Mr Davies: Mr Jenkin, I do not recognise your figures but we are introducing an
additional eight Chinook helicopters which have been specifically refurbished
to provide for the lift role for which we want them, the battlefield tactical
lift role which you just identified correctly as being so important. We have just bought six Merlins from Denmark
and we will be deploying those in the most useful fashion possible as soon as
we possibly can. We are bringing in a
lot of highly capable helicopters, we are investing in helicopters the whole
time and I have just given you the figures.
Q403 Mr
Jenkin: How many helicopters are you planning
that we have by 2020?
Mr Davies: I do not know that we have an actual figure for that but if we do I
dare say my colleagues will help me with it.
Have you any idea what the figure will be?
Lieutenant General
Figgures: You mentioned Mr Jenkin Chinook and
you mentioned 14.
Q404 Mr
Jenkin: 14 by 2020.
Lieutenant General
Figgures: I think we shall have 48 by 2020.
Q405 Mr
Jenkin: That does mean considerable life
extensions beyond the out of service dates that you currently announced.
Lieutenant General
Figgures: Indeed.
Q406 Mr
Jenkin: So we are going to be flying older
and older airframes because we will not order any new helicopters.
Lieutenant General
Figgures: Chinook is a robust airframe and we
have plans to upgrade the cockpits, we have plans to have a universal fleet so
we have 48 of a similar standard, we have plans to up-engine it and of course
to keep its defensive aid suites, communications, weapon fit and so on to match
the threat. Chinook actually is a very
good example of the through life capability approach which we have taken to get
the most out of the fleets we own.
Q407 Mr
Jenkin: I have put down questions to ask for
straight answers on this and it is only by piecing together a jigsaw that I am
able to put together any figures at all.
Could I ask the Minister in future, if I put down a question, to maybe
provide the Committee with the information that you have there and maybe we
would have a more intelligent discussion about what these capabilities are.
Mr Davies: Mr Jenkin, I appreciate your questions and we do try to give the
correct answers. I am quite confident
that I have never given you an answer, never given you an answer - let me say
this twice now ---
Q408 Mr
Jenkin: You the Government.
Mr Davies: -- which suggests that we will only have 14 Chinooks in 2020. I do
not know where that came from; it cannot possibly have come from any answer
which I gave because I can assure you that if somebody presented me with a
draft answer of that kind there would be an immediate inquiry in the MoD as to
how we could possibly be proposing to do any such thing. I do not know where that figure came from but
it certainly did not come from us, it certainly did not from me in a
Parliamentary answer.
Q409 Mr
Jenkin: I think you will find that in order
to get more than 14 helicopters you will need to adjust some out of service
dates that you have already published.
The General is nodding.
Mr Davies: You are making all kinds of assumptions.
Q410 Mr
Jenkin: I am making assumptions on the basis
of answers the Government has given me.
Mr Davies: You are making assumptions that we do not either refurbish or
upgrade or buy a single new helicopter between now and 2020. I have no idea why you think such an
assumption is correct.
Q411 Mr
Jenkin: What is the lead time on buying new
Chinook helicopters?
Mr Davies: Mr Jenkin, I repeat, I appreciate your questions and I repeat there
is always a well-informed interest in our proceedings and it is extremely
valuable for us to have people who take a close interest in things like
that. There is, however, clearly a
mistake involved in the assumption of 14 and I think you have had that
confirmation now from General Figgures.
General Figgures has been able to give you a very different figure - the
difference between 14 and 48 I am sure you will agree is a material difference.
Chairman: Moving on, Linda Gilroy.
Q412 Linda
Gilroy: Minister, following the Pre-Budget
Statement the chief executive of the SBAC said "It is a disappointment that the
Chancellor has neglected to include an injection of much-needed funds for the
UK defence industry. This oversight is
disappointing given the contribution that this industry will make to the UK's
economic recovery, a contribution that could be even greater still if the
Government had included it in the stimulus package." How disappointed were you that there was no
injection of funds for the UK defence industry in the Pre-Budget Statement?
Mr Davies: First of all, Mrs Gilroy, I have to say that I think the Government
very adequately indeed is funding defence, and the effort we have made has been
most impressive, not only the core defence programme which is increasing the
whole time as I have already said - the defence budget as a whole is increasing
by one and a half per cent, equipment and support are doing extremely well in
that context, but also there is the UORs and, as you know, we are expecting to
have UORs of £635 million in the course of the coming financial year and that
is in addition to the very substantial amounts of money we have provided for
the latest batch of protected vehicles, for 700 new PPVs for Afghanistan, which
was announced last month. That is a
record we can all be very proud of. What
I think you are questioning is about the fiscal stimulus package. Let me go into that a little bit because
there may be some misunderstandings here.
It goes without saying, Mrs Gilroy, that like every defence procurement
minister in the world I imagine I am not in the business of turning down new
money; if it comes to me I am very happy to put it to very, very good use.
Q413 Linda
Gilroy: Did you actually make the case for
more?
Mr Davies: Let me explain to you about that.
If you want to go in for a fiscal stimulation package, which of course
the Government is - and I think you and I agree - doing entirely the right
thing about, then we really need to achieve three criteria. First of all you need to have spending which
feeds through very rapidly into consumption - in other words you cannot use
Crossrail, for example, because by the time you have all the planning inquiries
---
Q414 Chairman: Minister, I wonder if you could do your utmost to answer Linda
Gilroy's question, did you make the case for more defence spending, rather than
talk about Crossrail?
Mr Davies: I have to say that you need to achieve three things, Mr
Arbuthnot. One is you need to bring
forward this money rapidly into consumption, and defence is not necessarily
ideal for that purpose because the lead times in defence are quite long between
you signing a contract - because we are very often at the frontiers of technology
- and when the money actually flows through in the pay packets of the people
who are being employed by contrast to other sectors of economic activity. That
is the first thing that really needs to be said.
Q415 Chairman: It sounds as if we are building up to a no.
Mr Davies: Perhaps I could be allowed to just answer the question.
Q416 Chairman: That would be good.
Mr Davies: The second thing is that ideally to use your money for maximum
impact you need to spend it on goods and services which are labour-intensive
rather than capital-intensive in their manufacture so that the benefits flow
through into pay packets rather than into rewards for providers of capital -
banks and shareholders and so forth who would inevitably have a very high
propensity to save and a low propensity to consume. Ideally you need those wages to flow through
to people who are relatively low-paid.
That is not the case with defence; defence is capital-intensive rather than
labour-intensive.
Q417 Chairman: Minister, can I suggest you please do your utmost to answer the
question and to say then "I will explain why that is" if you like. In this case, when Linda Gilroy asks you "Did
you make the case?" you can say, "No, and I will say why it would have been a
bad case to make" or "No, and I wish I had", or some other answer but do please
try to answer the questions that we put rather than explaining everything all
around the houses before you actually answer the question.
Mr Davies: Mr Arbuthnot, I am trying to enable the Committee to understand why
actually defence is not an obviously efficient target for counter-cyclical
fiscal stimulation, which is the question I was asked by Mrs Gilroy. The third factor is leakage into
imports. There is quite a high leakage
into imports in defence, inevitably, and that is not the case, for example, if
you are repainting schools or putting new roofs on schools.
Chairman: I think you have answered that question. Linda Gilroy.
Q418 Linda
Gilroy: Can I just take that up, based on
the region that I represent part of, where we have one of the biggest aerospace
industries possibly in the whole of Europe in terms of defence employment,
estimated to be about 40,000 with 100,000 indirectly dependent and a very long
supply chain reaching right down into Cornwall from the more obvious places
where the aerospace industry is sited in the region with a presence from all
four primes. Are you saying to me that
before the Pre-Budget Statement - and people are still trying to work this out
- there is sufficient in the way that you have reconfigured the defence budget
to enable that supply chain to be maintained?
Mr Davies: Yes, I believe there is.
Q419 Linda
Gilroy: That is a very straight answer and a
short answer. Can I move on to research
spending then because that puts the other angle on it. I am sure you will have read the exchange
that I had with the Permanent Under-Secretary on the fears about the cuts in
the defence research spending and the way in which that can impact on the long
term capability and keeping ahead in that capability. Has defence research spending been cut; if so
by how much and in what specific areas?
Mr Davies: We have not made an announcement about that in the equipment
examination. The matter is under
review. I would say, Mrs Gilroy, that we
obviously do not spend money carelessly, we spend money on research spending
because we are very conscious of the benefit we can get from that particular
research programme and, like everything else, we have to look at it from the
point of view of priorities, so I am not in a position to give you any
assurances about that particular matter.
Q420 Linda
Gilroy: There are obviously tensions and you
set out at some length earlier on how you were seeking to balance that, but the
Defence Technology Strategy said that the military advantage achieved at any
one time depends upon the research and development investment being made during
the previous 25 years. What estimate are
you making of the impact on the UK's future military advantage from the cut in
defence research spending?
Mr Davies: I cannot quantify that. The
important thing is to use the defence research spending as intelligently as
possible, for example to try to make sure that as far as possible it is
co-investment, so we provide a certain amount of money and we persuade perhaps the
private sector to provide some more money, and we therefore leverage our own
particular budget. Clearly, some
expenditure on research is absolutely vital; no one is suggesting we should get
out of the research business but, equally, we cannot say ab initio a priori that spending money on research is more useful
than spending money on anything else, I do not think that would be a fair thing
to say. This is something which cannot
be immune from our examination from time to time as to whether we are getting
the priorities right.
Q421 Linda
Gilroy: Can you confirm to the Committee
that you are making some estimate of what the impact is - whether it is a seven
per cent cut or not - of whatever cutback there is in the defence budget?
Mr Davies: Let me put it more positively: we always try and make an estimate of
what the value is potentially and what the return may be from any particular
defence research spending that we make.
If we have to cut something then we obviously decide what is a negative
return, what are we sacrificing, we try to be as robust about these things as
we can.
Q422 Linda
Gilroy: When do you think we can expect to
have greater clarity about what exactly will be in the defence research budget?
Mr Davies: I once again say, Mrs Gilroy, there is no hidden agenda here and it
is not as if I am withholding some announcement which I am conscious of but for
some reason I do not want to make it before this Committee. That is not the case at all, I am simply
saying that we will be reviewing our defence research spending. When I say reviewing that does not
necessarily mean cutting, but we are looking to make sure - as we will be doing
on all our equipment and support programmes - that the current spending
accurately reflects our present notion of what the priorities ought to be.
Q423 Linda
Gilroy: You would not at this stage agree
with the chief executive of SBAC when he told us that defence research spending
has been cut by seven per cent - it has been cut.
Mr Davies: I do not know what the baseline is on which he is making that
statement. If you actually look at
research spending over the last five or six years you see it is an up and down
figure, sometimes it goes up and sometimes it goes down. It has been roughly in the area of £550-£650
million for a number of years.
Q424 Linda
Gilroy: In real terms that is a cut.
Mr Davies: In real terms, Mrs Gilroy, the rate of inflation is not very great
and depending on what baseline you take you can see that there was a real
growth in spending over a particular period of years and it may well be that
over that period of years there would be a real terms increase in research
spending, so since you have got this peaks and troughs picture what sort of
trend you deduce and whether it is a positive or a negative growth rate really depends
upon where you take your baseline. If
you take your baseline at the low point you will find that there is an apparent
growth trend over the subsequent period.
Q425 Mr
Holloway: I was always pretty useless at
corporate finance but can I just pick up on Mr Jenkin's thing here. You have a table that says "Changes in
Resources and Capital Expenditure in the Winter
Supplementary Estimates and it says that net provision in defence
capability is down £950 million and obligations in peacekeeping going up by
almost the same amount; surely what you are doing is your are robbing Peter to
pay Paul so you are going down on your future capability in order to fund what
you are doing out in Afghanistan or wherever else, so it is a cut.
Mr Davies: No, Mr Holloway, we are not making cuts; as I said we are making
changes in our priorities from time to time and I repeat, we have not cut any
of these long term programmes and we are very much committed to these long term
programmes. So we are not robbing Peter
to pay Paul.
Q426 Mr
Holloway: What is that then? Sorry, I must be really dim, what is that?
Mr Davies: Let me put it this way - we have already been over this ground - the
major re-profiling exercise in the equipment examination was the carriers. We have re-profiled spending on the
carriers. I have explained to you
already once there is absolutely no element of defence capability cut involved
in that at all, it has been possible to re-profile expenditure to take the
strain off the coming two financial years without paying any price in terms of
the nation's defence capability. It may
seem to you paradoxical that we can achieve such an effect, apparently a free
effect, because we have not incurred any cost to our defence capability, but
that is the case, that is what we have been looking at. Under no circumstances could you characterise
such a thing as a cut.
Chairman: I want to move on to the Defence Industrial Strategy, Vice-Chairman
David Crausby.
Q427 Mr
Crausby: Who has the overall responsibility
for the Defence Industrial Strategy?
Mr Davies: I do as a Minister and Mr Amyas Morse who is here with me as an
official.
Q428 Mr
Crausby: I would not have needed to ask that
question when Lord Drayson was in your position. It was generally accepted that Lord Drayson
drove the policy forward and did a tremendous job on it, yet I have to say that
the general impression, right across industry and politics, is that the impetus
has been lost and the Defence Industrial Strategy has been effectively parked
on one side. What do you intend to do about
regaining that impetus?
Mr Davies: First of all, Mr Crausby, I think it is a fair characterisation of
the last three years since the Defence Industrial Strategy was first
promulgated that we have been implementing it; we have been implementing it - I
hope you will give us credit for that - in a rather impressive fashion. All these contracts that we have been talking
about, the new contract for the carriers, for example, the contract for Future
Lynx which we have just been talking about, are all a manifestation of that, so
the best thing that can happen with the Defence Industrial Strategy I should
have thought was that it should be implemented, it has been implemented and is
being implemented and will continue to be implemented.
Q429 Mr
Crausby: What about the Defence Industrial
Strategy 2? As you have just been saying
we understand that Mr Morse is in charge of the Defence Industrial Strategy;
can you help us on progress on this, please?
Mr Morse: Certainly. Is that all
right, Minister, shall I do that?
Mr Davies: By all means, I will come in in a second.
Mr Morse: The answer is that we have not produced a Defence Industrial
Strategy 2 in the timescale we originally planned on doing, and that is largely
because industry has said "Look, if you cannot be clear about the sector or the
strategy and give us some indication of your spending plans we do not want to
move forward with policy and the other aspects of it, we want to wait until
things are as clear as possible. So it
is not a question that we have held it up and industry did not know what we
were doing; we have constantly talked to them.
Since DIS1 we have also been in joint working with them on quite a
number of policy issues in developing positions on those and also looking at
some sectoral issues with them, so there has been quite a lot of continuing
work. As to the question can we produce
a composite of the whole thing, sectoral as well as policy, they very clearly
said they do not want to produce the policy for us and we have gone with that
up to now. I agree it has led to rather
more of a delay in producing that than we planned originally, but that is where
we are. The only other comment I will
make is that I do conduct, with other colleagues, a number of discussions with
industry - sometimes on easy and sometimes on difficult subjects - and we do so
on a very frank and business-like and open basis as far as we possibly
can. We call a spade a spade when we
have to, and industry increasingly does that as well, and we talk to industry
before we do things about what makes sense.
We are trying very hard to put this into effect and work with industry
more closely. I personally very strongly
believe in that close approach and as much joint working as we can manage,
coupled with a very tough, demanding regime on showing value for money.
Q430 Mr
Crausby: I hear what you say, Minister, that
progress has been made on the Defence Industrial Strategy but when we met
industry their argument was that the principle behind the Defence Industrial
Strategy scheme was "magnificent" but because of the funding problems it was
effectively "on hold". Do you believe
that, are the funding issues in these circumstances limiting progress on the
Defence Industrial Strategy?
Mr Davies: No, the two things are quite separate, as I have explained. We remain committed to a very wide range of
equipment programmes, we have not cut any essential equipment programmes, and I
trust we will not, and industry understands that. They also understand that we have looked
again at the priorities and so we discussed that with them in the context of
the Defence Industrial Strategy and our partnership with our major defence
suppliers. We talked through our views
about this during the equipment examination and there were no shocks or
surprises for them as a result of that examination. So far as the Defence Industrial Strategy is
concerned I repeat, I am completely committed to the principles of that Defence
Industrial Strategy, the Government are completely committed to those
principles, we are continuing to implement the Defence Industrial
Strategy. Whether it makes sense to have
a second version of that, Defence Industrial Strategy 2, is a matter on which I
am open-minded and I have expressed myself along those lines with
industry. In so far as Defence
Industrial Strategy 2 gave a greater degree of clarity, a greater degree of
investor confidence to industry, in other words in so far as it was more
explicit on the sectoral information, on the budgetary information and so forth
than the existing one, industry would no doubt be pleased to have it, but if it
did not achieve those things - and it might be difficult for us to achieve
those things - then there is a great danger having too frequent a re-issue of
the Defence Industrial Strategy because it is supposed to be a long-term
framework. Lead times in the defence
industry are very long so if you suddenly say every two or three years we are
going to change the Defence Industrial Strategy that might have a very negative
effect on confidence. We are discussing
this with industry, I am completely open-minded about what we do about
producing some new document or when we produce a new document and I certainly
do not exclude doing so.
Q431 Mr
Crausby: Let me tell you what the Defence
Industries Council said in its memorandum to us. They agreed that steps have been made towards
upholding the principles set out but they said "However overall progress has
been much slower than industry would have wished." It is clear that industry are disappointed in
the progress that has been made; is industry wrong to be disappointed, are you
satisfied with the speed of the progress that has been made?
Mr Davies: Mr Crausby, I come from a private sector background and one is never
satisfied with the degree of market that one has, one always wants to have a
bigger market, one always wants to have a bigger market share. It would intensely surprise me if the
customers of the MoD at any one stage said "Thank you very much, we are quite
satisfied with the flow of orders, we are quite satisfied with the defence
budget, we do not want any more." That
would not be a natural state of affairs, so I regard it as a very natural
understanding of the state of affairs.
When they say they would like a bit more money that is perfectly reasonable
but they recognise realities, they are getting more money all the time but not,
obviously, at the pace that they might conceivably be asking for.
Q432 Mr
Holloway: Minister, listening to you it
would seem that everything is going brilliantly, particularly in the two and a
half months since you took over, but are there any areas where you might think
you could have done a bit better or is everything just going marvellously.
Mr Davies: We are always looking to raise our game, of course we are, we are
always looking to raise our game in defence procurement, we are always looking
to do things better, we are always looking to do things cheaper, to get the
capability we need more effectively. We
are always looking at new contract mechanisms, new financial disciplines and so
forth of that kind. If you ask me if I
have any concerns about our ability to deliver the capability which the
military need and deserve, then I think my main concern is the one that we have
already touched on, which is the air bridge.
It is a matter of honest considerable concern; there are no miracle
immediate solutions available, this is very, very difficult territory for us
but it is something that we are certainly all working on and spending a lot of
time thinking about. I do not mean to
just leave the issue there, I do not mean to just say there is nothing we can
do, that is it. We will I trust be
taking some measures and in time of course, as soon as we can announce them, we
will announce them.
Q433 Mr
Jenkin: Can I just point out that your
predecessor but one originally promised us the Defence Industrial Strategy 2 by
last Christmas, and then your predecessor promised us in the Spring. Now we have a new doctrine that it might not
be necessary to have DIS2 at all, at least it is not necessary to have these
documents nearly as often as was originally envisaged. Can you explain what Government policy now
is?
Mr Davies: Government policy is as I just enunciated it, which is that we are
totally committed to the Defence Industrial Strategy as it exists. That document dating from 2005 is still a
very valid document, indeed it is in many ways our sort of road map and that
continues to be the case.
Q434 Mr
Jenkin: Why did Lord Drayson think it was
going to be very necessary to produce a new one and you have decided that you
do not need one?
Mr Davies: I cannot answer questions on behalf of other people and I certainly
cannot answer questions three years afterwards because contexts change, things
change. I am trying to give you, Mr
Jenkin, a very frank response and I certainly do not exclude having a new
document. As I say, I am open-minded
about when that should best be and I am very conscious that there is no point
having a document for the sake of having a document, there is no point having a
document which is full of general principles and aspirations, the only sort of
document that industry is actually interested in - and you will know this as
well as I do - is a document which gives a very great deal of clarity and
certainty about our purchasing plans.
Q435 Mr
Jenkin: What is holding it up?
Mr Davies: What is holding it up is that we have of course had the equipment
examination. As I have said, the
exercise of looking at our priorities and so forth is not something which is
just finished once and for all, there are a number of uncertainties still in
the future, there will be for some time, we are engaged in operations where the
requirements we have for the front line change and evolve quite rapidly, so we
need to maintain ---
Q436 Mr
Jenkin: What you are saying is that
short-term considerations are dominating Ministry of Defence thinking and
long-term planning is going out the window.
Mr Davies: No, on the contrary, we have just placed some very long term
commitments, long term orders: Future
Lynx and the carriers would be two very good examples there.
Q437 Mr
Jenkin: Future Lynx went through main gate
two years ago.
Mr Davies: We have just confirmed Future Lynx, as I have just explained, and
that has now given industry a great deal of clarity in that particular business. Mr Jenkin, if I see my way to be able to
produce a document which achieves the desiderata of industry then my instinct
would be to want to go ahead with it.
That is the most I can say to you for the moment.
Mr Jenkin: Which is not very much.
Q438 Chairman: Mr Morse told us that it is the absence of clarity that prevents us
from having a Defence Industrial Strategy 2; would you agree with that? Am I paraphrasing you incorrectly?
Mr Morse: What I was saying is that we have a dialogue with industry - and
you will have heard this from them I am quite sure - about whether or not we
should go ahead with the Defence Industrial Strategy and in producing DIS2 and
up to now they have been consistent in saying not unless you can give us a
clear statement of sectoral plans on a comprehensive basis. As the Minister has said, the equipment
examination has made that difficult.
Q439 Chairman: You cannot.
Mr Morse: Not while you are doing an equipment examination.
Q440 Chairman: The short examination has made that difficult and we are told now
that the short examination is over, so that difficulty has evaporated, has it
not?
Mr Davies: Mr Arbuthnot, the position is this: as I have just said, it would
not be sensible to have a new Defence Industrial Strategy every year, it would
be crazy.
Q441 Chairman: This is part of the old Defence Industrial Strategy. It was envisaged in the Defence Industrial
Strategy that we would have a Defence Industrial Strategy 2.
Mr Davies: I personally do not think that we should have these documents too frequently,
you devalue them if you have them too frequently, I really mean that. I do not think we should have one every year,
I do not think we should have one every two years, we should not necessarily
have one every three years. I think we
need to make sure that when we do have one it is at the right strategic moment
when we can say something which is novel, which is original, which is
arresting, which is detailed, which is full of sectoral and financial
information of the kind that industry wants.
As and when we get to that position the advantages of having such a
document would be greater than the disadvantages. If we cannot agree those degrees of clarity
then I do not think that the advantages necessarily would override the
disadvantages and one of the disadvantages might be to devalue the existing
document.
Q442 Mr
Jenkin: Can I put it to you, Minister, it is
very difficult to say anything novel or innovative when in fact the only things
you can announce are delays, freezing contracts, putting things back. We all know - let us have a grown-up
conversation about this - you have a procurement bow wave and the only way you
can take the strain out of your programme is by delaying decisions and delaying
acquisition programmes. That is not a
very exciting thing to put into a strategy, is it?
Mr Davies: Mr Jenkin, that is a very one-sided view because it is just not a
reasonable view. Of course we have put
back some things but we have brought forward other things. You have chosen not to mention things we have
brought forward like Future Lynx, like Warrior updates ---
Q443 Mr
Jenkin: That was already in the programme.
Mr Davies: But we have brought them forward.
It is very important to get the full picture.
Mr Jenkin: It has not been brought forward.
Q444 Chairman: Do you describe what has happened to Future Lynx as bringing it
forward?
Mr Davies: I do, Mr Arbuthnot, for the simple reason that there was very
considerable uncertainty about this whole programme, there were all kinds of
rumours ---
Q445 Chairman: Why was there this uncertainty?
It was caused by the Government.
Mr Davies: I can assure you that when I arrived in my present office there were
a large number of rumours that we were going to cancel this particular
programme.
Q446 Mr
Jenkin: Why would that have been the case?
Mr Davies: I can never account for rumours, Mr Jenkin, you would be as good as
I would be in guessing that.
Mr Jenkin: It is not difficult.
Q447 Mr
Havard: Can I ask you then what you say to
Lord Mandelson and the Department for Business or whatever it is called
nowadays.
Mr Davies: Business Enterprise
and Regulatory Reform.
Q448 Mr
Havard: Thank you; that is this week
anyway. The question, however, about
looking at strategic industries in the current circumstances we are going
through in essentially the next two but probably five years, they are looking
at what they need in terms of sovereignty, for capability in industry, in
different areas in different ways. They
must be asking the Ministry of Defence to make a contribution to that
discussion; what do you say to them other than the fact we had a strategy, we
published it in 2005, mate, you can read that and that is all we are doing?
Mr Davies: I am saying that that particular strategy foresaw a number of areas
of sovereign capability and foresaw key partnerships which we would undertake
with the major players in those sectors in accordance with that particular
strategy.
Q449 Mr
Havard: If we are going to have a Government
Industrial Strategy (if I can put it that way) you have a Defence Industrial
Strategy which has not been revised during that period of time. You are being asked for a revision, are you
not, through that process?
Mr Davies: Mr Havard, of course I am only responsible for the defence aspects
of our Industrial Strategy but I repeat we are totally committed to that
Defence Industrial Strategy and our partners know that. As almost each month goes by we add to the
implementation of that particular strategy but we are far from having achieved
everything that was foreseen in that Defence Industrial Strategy. That remains a very useful working document
and, as I have already said, one of my hesitations about the Defence Industrial
Strategy 2 - although I do not exclude it at all - is that we do not want in
any way to create any uncertainty about our commitment to the Defence
Industrial Strategy as it exists.
Q450 Chairman: Your partners know that, do they, because when Mike Turner, who
knows a thing or two about defence came in front of us, he said the Defence
Industrial Strategy is on hold. He said:
"Now I think it is in doubt. We are very
pessimistic about the future because we have the DIS, we have the principles,
we have the strategy; we do not have the money." Was he right?
Mr Davies: I quite agree with everything you say about Mike Turner, he is an
exceptionally talented businessman and he certainly knows a vast amount about
defence and the defence industry. So far
as the last comment is concerned that we do not have the money, I have already
explained that it would be immensely surprising ---
Q451 Chairman: No, but he thinks the Defence Industrial Strategy is on hold.
Mr Davies: If he said that there was all the money there that he would like for
his defence industries then it would be an extremely surprising comment, I
agree. He did not say that and I do not
think any of us should be particularly surprised at the line that he has been
taking. As for "on hold", that term is
slightly ambiguous. It may mean valid,
still in existence, unchanged, and if that is the characterisation he was
giving it that is the correct characterisation.
Chairman: No, it was not the characterisation he was giving it. Adam Holloway.
Q452 Mr
Holloway: How does the unexpected,
unplanned-for level of violence in Helmand Province fit in with this?
Mr Davies: That is a matter which does give rise to defence equipment and
support needs which are very urgent and which we treat as being of the utmost
priority. I think I have explained to
you in the course of the proceedings so far some of the things we have done
about that, that is the reason why we came up with the new package of armoured
and protected vehicles in November, another 700 vehicles. Remember we have about 8000 men and women in
theatre so we are talking about one new vehicle for every 12 people or so who
are actually deployed there. That is a
pretty high number of vehicles, I think you will agree, Mr Holloway. Needless to say not everybody employed there
in the course of his or her job goes on patrol so there is quite a large
number. Other things, like re-engining
the Lynx helicopter, that is something that I set the highest personal priority
for and I had asked Rolls Royce for a quote on that within almost a few days of
arriving.
Q453 Chairman: I would like to come back to the Defence Industrial Strategy,
please. Still on what Mike Turner said
to us, he said, "It is extremely difficult for industry to plan as we hoped we
would be able to when we had a DIS, but that is reality."
Mr Davies: He said it is difficult to plan when we have a DIS?
Q454 Chairman: "It is extremely difficult for industry to plan as we hoped we
would be able to when we had a DIS ..." That explains what he believes about the
existence of the Defence Industrial Strategy, does it not?
Mr Davies: Mr Arbuthnot, you and I are discussing what somebody else feels
about this.
Q455 Chairman: He is a rather important person.
Mr Davies: He is a very important person and I do actually speak to him about
this. I do not know when these quotes
derive from by the way.
Q456 Chairman: It was evidence in front of this Committee which is in the public
domain.
Mr Davies: When was that?
Q457 Chairman: Two months ago.
Mr Davies: Ah, well two months ago, that may explain it.
Q458 Chairman: Ah, the Defence Industrial Strategy is right back on course now, is
it?
Mr Davies: The Defence Industrial Strategy, in my view, Mr Arbuthnot, has never
been off course over the last three years.
Q459 Chairman: I am sorry, 18 November, it is one month. You have revived something.
Mr Davies: I have to say that maybe Mr Turner had not had the opportunity of
the conversations we have subsequently had when he gave the answers he
did. It is always invidious to quote the
results of personal conversations, even if one does not go into the detailed
content of them, but I have to say, and I say it advisedly, I am sure that Mr
Turner would not disagree when I say that he and I have had a number of very
constructive conversations on this matter and that he does believe that his
views are very much reflected in my thinking on this and that we are not very
far apart, certainly not in our principles and our objectives.
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 three per cent 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 Babcocks 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.