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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