The United Kingdom's Future Nuclear Deterrent Capability - Public Accounts Committee Contents


Examination of Witnesses (Questions 1-19)

MINISTRY OF DEFENCE

WEDNESDAY 19 NOVEMBER 2008

  Q1 Chairman: Good afternoon. Welcome to the Committee of Public Accounts. Our hearing today is on the Comptroller and Auditor General's Report on the United Kingdom's future nuclear deterrent capability. We welcome back to our Committee Sir Bill Jeffrey, who is the Permanent Under-Secretary with the Ministry of Defence, Guy Lester, who is the Director General Equipment and Senior Responsible Owner of the future deterrent programme, Rear Admiral Andrew Mathews, Director General Submarines, and Dr Paul Hollinshead, who is the Director Strategic Requirement. You are all very welcome. This is a somewhat unusual hearing for us. I suggested to the Comptroller General that I think it would be a good idea to do this programme in good time, almost in advance, so that the Committee of Public Accounts over the next 15 years or so can keep a track of what is happening. I think this is a useful exercise. I appreciate we are in the early stages. Sir Bill, given your experience with the Astute submarine, if we look at box three, "Problems associated with the Astute submarine programme ... ", we see there that it was hugely over-budget, 40% over budget. It has slipped by three years. How are we going to avoid the same problems occurring with the Trident replacement system?

  Sir Bill Jeffrey: Although, as you say, it is unusual for your Committee to tackle a project like this as early as this, I never thought I would hear myself say this but we very much welcome this as well. Of course, the Astute project is one of those longstanding projects in our portfolio which have been very much delayed and subject to cost growth. In a short answer to your question, we feel we have learned the lessons of that. In a slightly longer answer, if you look at box three, the reasons for why Astute went wrong—slow contract negotiations and over-estimation of how much risk we can realistically transfer to our suppliers, problems with the computer assisted design and crucially—I think my colleagues would endorse this—the loss of key skills and the gap between the end of the Vanguard class and the beginning of the Astute class—in each of these areas I think we are well aware of the risks. We believe we are managing them effectively.

  Q2  Chairman: You cannot make a mistake on this, can you, because your existing submarines run out of time in 2024. Your existing submarines apparently have not missed a day since 1968.

  Sir Bill Jeffrey: That is correct.

  Q3  Chairman: There has not been a single gap in our nuclear deterrent. It is not like other defence systems where you can patch them up; you can put them to sea and hope for the best. You have to have these new submarines in perfect condition. Sixteen years sounds a lot of time, does it not, but it is not a lot, is it, for a submarine of this complexity?

  Sir Bill Jeffrey: There was some question, at the time of the White Paper and the parliamentary debate, as to whether the decision was in fact being taken too early. We have felt throughout that time is quite tight, although as you say, Chairman, it seems a very long way off. The thinking in the White Paper and in all our planning at the moment is that we can extend the Vanguard class by five years which would be quite a normal period of extension. It is quite possible that it could be extended for longer.

  Q4  Chairman: When could you conceivably extend it to?

  Sir Bill Jeffrey: I could not say. We are looking at it. What I was about to say was that any further extension would inevitably involve extra cost and risk. The thing about these very complex nuclear submarines is that the longer you keep them in service the more out of service they need to be for purposes of maintenance etc. The short point is that we are not banking on any extension beyond the five years. All of our efforts at the moment are driven by the 2024 in service date.

  Q5  Chairman: One of the big risks is in the missile programme, is it not? That is in US hands and that apparently relies on exchange of letters between President Bush and Prime Minister Blair. Obviously they are no longer with us.

  Sir Bill Jeffrey: President Bush is, I think.

  Q6  Chairman: The US is not planning to finalise the design of the shared missile compartment until after we need to finalise the design of our submarines. How can we meet the timetable? Is there going to be a problem there?

  Sir Bill Jeffrey: This is why the discussions between us and the Americans before the White Paper was published and since then are so important. We are joining with the Americans—and part of the exchange of correspondence was the President agreeing to our doing so—in the plans to extend the life of the D5 missile to around 2042, when the US Ohio class submarines are due to go out of service. Because of the phasing of the introduction of the next generation of our deterrent submarines, that will be part way through their lifetime, so we need as good an assurance as we can have that the decision the Americans may eventually take on the successor to the D5 missile does not leave us with compatibility problems. In that correspondence, I think there is as good an assurance as we could have that, in the language of President Bush's letter, we would have the option of participating in any future missile programme. Any successor to the D5 would be compatible or capable of being made compatible with the launch system that we will be installing into our successor deterrent.

  Q7  Chairman: Now may I ask questions about Senior Responsible Owners? This is very important because in our 2007 Report on Bowman we recommended "that the Department should equip Senior Responsible Owners with the funding, authority and trust to fully discharge their responsibilities" but if we look at paragraphs 3.5 and 3.6 of the Comptroller's Report we see that under current arrangements, Director General Equipment, in his role as Senior Responsible Owner, does not have direct line responsibility. Indeed, your Senior Responsible Owner—he can answer himself if he wishes, rather than you—does not have direct line management responsibility. He is part time and he is the third one in 18 months. This does not fill me with confidence, Sir Bill.

  Sir Bill Jeffrey: First of all, I think he does have authority in our organisation. In the MoD, the natural place to locate the ownership of these big projects is in the area at the centre. You will recall receiving evidence from General Andrew Figgures, the equipment capability owner. Guy Lester on my left reports to General Figgures and is a very senior official in the equipment capability area. He has the authority of the Defence Board and has access to myself and to the Chief of Defence Materiel, if he needs it.

  Q8  Chairman: He is the third one in 18 months.

  Sir Bill Jeffrey: That is regrettable. It is a consequence of staff changes, but I have no plans for the moment to change the occupant of the post for some time to come. Although the role is not full time, it is supported by a full time one star, Dr Hollinshead on my right, the Director Strategic Requirement, and since earlier this year by a programme support office which is well placed to bring together all the various elements of the nuclear deterrent. This may change over time because at the moment we are still at a stage where I am attaching a lot of importance to the wider network of relationships that somebody at the centre needs to have with other people in government. This is, for the moment at least, not just an MoD project; it brings in the Foreign Office and it also involves—

  Q9  Chairman: I want to ask you about that. This is mentioned in paragraph 3.2 where agreement with the Cabinet Office is involved and the Foreign Office. Who ultimately takes the big decisions? Where does the buck stop? Is it you? Who is responsible to us for this thing if it goes over time or over budget? Presumably it is you?

  Sir Bill Jeffrey: That is me. I am responsible to this Committee as I am for all expenditure within the Department. The big decision clearly was the one taken at the time of the White Paper and that was taken by the Prime Minister and his Cabinet colleagues of the day. There is still an extent to which this programme, because it resonates in the way that it does and brings in issues of foreign policy as well as purely defence issues, is of interest to Number 10, the Cabinet Office, the Foreign Office and others. We certainly need an SRO positioned at the centre of the organisation who can see not only all the MoD connections and have effect on them; but who also is well placed to plug into other parts of Whitehall. What I would say—and the NAO Report rather brings this out—is that as we move gradually from policy to concept to delivery I can certainly see the governance arrangements evolving and becoming a bit simpler than the diagram that the Report includes.

  Q10  Chairman: I was worried to read in paragraph 4.5 that your Department accepts that the White Paper cost estimates are not sufficiently robust to provide an accurate baseline against which progress can be measured and a sufficiently detailed cost model which can be used to manage cash flow. When are your costs and timescale estimates going to be accurate enough for us to be able to measure progress?

  Sir Bill Jeffrey: The cost estimates in the White Paper were there because it seemed essential in terms of public confidence to be giving a broad indication of what we thought this programme would cost. They are now being refined and part of the intensive work that is going on now is to refine them as we understand better the design of the successor deterrent. When we come to the point of Initial Gate, which is expected to be next autumn, we intend to have a better take on costs.

  Q11  Chairman: These estimates are being refined, not transformed?

  Sir Bill Jeffrey: Refined, I would say, yes.

  Q12  Chairman: Trident came in on budget, did it not, but it was a much bigger US element and there was an exchange rate working in our favour. You cannot rely on this sort of thing, can you?

  Sir Bill Jeffrey: We cannot.

  Q13  Chairman: There are many imponderables.

  Sir Bill Jeffrey: We must find what we can in this area. The fact is that Trident did come in, broadly speaking, to cost and on time.

  Q14  Chairman: You have many commercial challenges. These are dealt with in 5.7. The trouble is that your contractors know exactly how much money you have. They know that it has to come in by a certain date. They have you over a barrel, have they not?

  Sir Bill Jeffrey: I would not put it as starkly as that. It is certainly the case that the defence industrial strategy makes it clear that these are assets that we would want to generate and retain onshore in the United Kingdom. As you have just observed, the White Paper gives a ballpark estimate of costs. The conclusion I would draw from that is that we must recognise that we are dealing with essentially monopoly suppliers. We have to work very hard to find other ways of achieving value for money. We are not in the business of doing this at any cost. If you look at the evidence that we submitted to the Defence Committee a little while ago, we made it clear that we would expect any commitment by the government to a long term submarine build programme to be matched by a commitment by the industry to rationalise and reduce costs. It is not straightforward but we have to acknowledge that we are in the position we are in and all the effort needs to be directed at getting the best deal we can.

  Q15  Nigel Griffiths: This project has already had its first delay. It is six weeks late. Is this setting a pattern?

  Sir Bill Jeffrey: I do not personally recognise the six week delay figure.

  Rear Admiral Mathews: It is a six week delay to the concept phase, because we were slow standing up the project team. We had absolutely clear instructions that we were to only do that once the decision had been made in Parliament to proceed. We are now holding programme and our intention is to catch up by the time we get to Initial Gate.

  Q16  Nigel Griffiths: I am concerned that 2.7 is clear. "During 2008 the concept phase slipped by six weeks." You do not recognise this. How late was the project's sister programme, the Astute submarine?

  Sir Bill Jeffrey: At the equivalent stage?

  Q17  Nigel Griffiths: Now. How late is it?

  Sir Bill Jeffrey: As the Report brings out, the Astute is much delayed. The original ISD for the first Astute boat was June 2005 and we are currently forecasting later this year, I think.

  Q18  Nigel Griffiths: When the Report was published, it was three years five months. Now that looks like three years six months/seven months. What has been the overspend on this sister programme on the Astute?

  Sir Bill Jeffrey: First of all, I should correct an error into which I slipped a moment ago. It is not later this year; it is during the course of next year that we are expecting the first Astute boat to be in service. The cost at approval for Astute in 1997 at current prices at that time was about £2.5 billion for the first three boats and the current estimate is £3.8 billion.

  Q19  Nigel Griffiths: That is a 47.3% cost overrun and a three years six months or so delay. Can you go to table two on page 12? Can you tell the Committee what the impact of that delay of three years five or six months would be likely to be on that time line?

  Sir Bill Jeffrey: If we had such a delay, it clearly would impact very severely on our time line. As the Chairman's opening question illustrated, we are currently driving as hard as we can towards 2024. As I said in my response to him, we believe that the lessons of the Astute programme are ones that we have learned and ones that the general commercial and procurement approach we are taking to this are capable of addressing successfully.



 
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