Defence Equipment 2010 - Defence Committee Contents

Examination of Witnesses (Question Numbers 257-279)



  Q257  Chairman: Good morning. It is not yet quite 10.30, but—you will be devastated to hear—we are not being televised and so I think we can start immediately. Thank you all very much for coming to give evidence in our Defence Equipment Inquiry. We heard last week from the Chief of Defence Materiel, and this morning it is the turn of industry to give your assessment of how things are. We said when we announced the Inquiry that we were going to concentrate on armoured vehicles, FRES, Strategic Airlift and maritime capability. We asked about those things in the previous session, and in this session we want to concentrate much more on the larger picture, on the process of acquisition. If there are issues on particular programmes that you want to raise, no doubt you will find an opportunity during the course of the morning, but I would like to start with asking about the Bernard Gray Review of Acquisition. During the course of the morning, I am afraid, several members of the Committee will have to leave. Please do not take this as discourtesy; it is not intended to be so. We just do, as Members of Parliament, have a lot of competing calls on our time and sometimes we have to be in several places at the same time. I think you have all appeared in front of us. Mr King, you have not appeared in front of this Committee for some years now.

  Mr King: I think it is some years ago. I think it was on the FSTA programme some years ago that I appeared.

  Q258  Chairman: Welcome back then. Dr Wilson, welcome back.

  Dr Wilson: Thank you.

  Q259  Chairman: Sir Brian, when was the last time you appeared in front of this Committee?

  Sir Brian Burridge: 2003.

  Chairman: A little time.

  Mr Hancock: It was that memorable, was it!

  Q260  Chairman: Mr Godden, you have been here virtually every month.

  Mr Godden: Not quite.

  Q261  Chairman: The Bernard Gray Review. I want to divide this into two parts. First, the analysis of the problems in the process of acquisition and, second, the solutions that Mr Gray proposes. I will ask some questions about the analysis of the problems first. Do you think that, on the whole, the analysis of the problems in the acquisition process is accurate or inaccurate? What would you say? Who would like to begin?

  Mr King: Chairman, we welcome the report. Clearly, there is a lot of detail and analysis in the report and it quite rightly identifies the imbalance that exists between the programme and the budgets and the need to address that issue. I think that is something that we in industry have felt strongly about for some time and certainly in the response we have given before on whether it was right to up-issue the Defence Industrial Strategy we said that the urgent need is to correct the balance between the programme and the budget and then the Defence Industrial Strategy can support that as a balanced structure going forward. I think it is recognised that it is in everybody's interests that the programme and the budget are aligned, but we do feel that we need to go through a proper process, and the right thing is that it does need to start from what is the foreign and security policy of the Government. We are very pleased that all parties have recognised that we then do need to do a Strategic Defence Review, but we are also very, very strong that, as part of that Strategic Defence Review, there does need to be real recognition that industry and the capabilities that we provide are fundamental to the Strategic Defence Review, and so a Defence Industrial Strategy will need to be posted, but it does need to reflect down, as I say, starting with the policy of where we are going to the Strategic Defence Review. There will almost certainly have to be a balancing of that Defence Review around affordability of the programme and then industry will be able to react in terms of a response to the Defence Industrial Strategy and align its resources and capabilities. So, in terms of the recognition in Bernard Gray's report on that as a set of processes, yes, we are supportive of what is said.

  Q262  Chairman: Mr Godden, in the ADS memorandum you say, "Much of the Gray report goes to MoD organisational matters. That is a matter for MoD." Surely it is also a matter on which you have views?

  Mr Godden: Of course.

  Q263  Chairman: What are your views?

  Mr Godden: With an organisation that is both a customer and a partner in various fashions, we are bound to have views about how things can be improved, but I think the main point was that the key elements of the Gray report are about how decision-making is made in government between Armed Forces and the procurers, ie the customer, and we did not want to be presumptuous in believing that that set of relationships is something that we would want to have any primary role in. We can comment on it—we have got views on it—but that was a statement really, just to say, of course, that is a matter for government organising its own decision-making in terms of priorities of programme and the decision about which types of equipment and services to develop for the Armed Forces in the pattern. And that was an important statement to make sure that we were not accused of or falling into the trap of believing that we can help government organise itself in terms of the ways in which various departments, service units and divisions organise. Then we have a comment, of course, about how that interacts with industry and how that whole effective interface works. And I think we have two or three main comments about, not so much the report itself, but about the features that we believe this report has highlighted, that decision-making between Armed Forces and procurement, or customer, for industry is very often too lengthy, is quite often unclear or unstrategic, and therefore gets reversed or can have a period of uncertainty created around it, and that aspect of the decision-making and the clarity of decision-making and direction is something that we believe does need to be tackled.

  Q264  Chairman: Do you agree with the general suggestion in the Bernard Gray Review that there is a whole series of perverse incentives within the Ministry of Defence leading to inappropriate decisions?

  Mr Godden: There are one or two areas where I think we would disagree with the language. The "conspiracy of optimism", for example, I think, is not necessarily the way that we would describe it. I think the description from industry is that there is a problem of constantly shifting requirements, and that is what we observe and feel quite regularly. Whether you use the words "conspiracy of optimism" for that or not, it is the shifting requirements and the simple lack of understanding of the capabilities that can be achieved on the part of the customer. That is the area that we would suggest is as important a language and important a feature. I think on the TLCM—

  Q265  Chairman: I want to come on to that.

  Mr Godden: Right. That is what I think in general. I do not know what other people want to add.

  Sir Brian Burridge: May I add a little to that? First of all, the Gray report points out the nature of perhaps tribal rivalry and the way that impacts on acquisition decisions. It is a matter for the MoD to sort out, and I think that is what we meant in that comment. In terms of the behaviours that result, those—together with the fact that the programme and the budget are not aligned—give rise to particular behaviours: a lack of strategic thinking such that there is certainty over a period, a tendency to generate complexity in decision-making (and perhaps when we come on to Through-Life Capability Management we can explore that) and, thirdly, a failure to recognise that time is cost. These behaviours which either leave decisions tenuous or unmade have a cost to them, and in that respect I think I would doubt that the DE&S themselves were very surprised by that analysis because it is something they constantly live with.

  Q266  Chairman: Sir Brian, you are the only one of our four witnesses who has actually served in a very distinguished capacity in recent times in the Armed Forces. I think you are, are you not? I just needed to check that. But that part of it, the tribal rivalries part of the Bernard Gray Review, does not strike you as entirely fanciful?

  Sir Brian Burridge: No.

  Q267  Mr Jenkins: There was just the remark—and I am sure I misheard it—where Mr Godden said, basically, "What has this got to do with us? It is the MoD's problem", but every contractor I have spoken to in recent years has told me that if they did not get the interfering busybodies from the MoD come down every week and all these constant meetings where they constantly reappraise what they are doing and reschedule it or re-spec it, then they could produce the product much, much cheaper and much quicker, and the only reason the MoD is coming down is to occupy their time rather than to process the product. If we continue to make products that are over-priced and have an extended life, we are going to go out of business, because other people are going to come in and offer a much better deal, are they not?

  Dr Wilson: Can I comment on that? In a slightly wider context of complexity, which I think is an underlying theme you can read throughout the Bernard Gray report, complexity seems to remain in the way that we procure equipment, and it is not just a DE&S or old DPA issue, it goes right back to requirement setting, and we tend to set over ambitious requirements. Ian Godden has just mentioned this constantly shifting set of requirements where new requirements are piled on top of what is already an over-ambitious requirement, and in one sense, if instead of complexity there was a degree of simplicity introduced into the requirement setting and into what was being procured, we could do a lot more to deliver earlier an initial capability which could then be onward developed through a spiral development process. This has the tremendous advantage of eliminating, or at least reducing, vast swathes of risk that go in the greater the complexity of your target. That leads to faster acquisition, probably better value for money and automatically even improves exportability of the product at the end of the day. So there are many things within the Bernard Gray report that at that level suddenly become quite stark and quite apparent, and the solution to them also looks fairly obvious, at least to me.

  Q268  Mr Jenkins: If I could add just one proviso, if we were ordering stuff from a manufacturer like helicopters, we would expect them to fly, would we not? We would not have to put a special sub-committee on to go down there and explain the reasons why they cannot fly at night, at dusk or in difficult conditions. Do you think it is disgraceful that any manufacturer should deliver something that cannot fly properly?

  Dr Wilson: I could not comment on that specifically.

  Chairman: I think that was a question aimed at me, Dr Wilson.

  Q269  Mr Hancock: Can I come back to something you said, Sir Brian, about people's failure to recognise that time is cost. Where is that failure most apparent then? It is quite a startling statement, but it could fall down on both sides, could it not?

  Sir Brian Burridge: The requirement setting phase is lengthy, the refinement of the requirement is also lengthy; whereas, as Dr Wilson has said, if the customer were to view a capability that they want to achieve over the long-term but introduce what Mr Gray calls the 80% solution—we would say an initial operating capability—then that could be reduced, because you would get the capability earlier and you would reduce a great deal of the complexity.

  Q270  Mr Hancock: As a senior commander, would you have been satisfied with 80%?

  Sir Brian Burridge: Yes, and we have some experience of it in the way in which we introduced Typhoon. Although we were criticised at the outset, we actually introduced Typhoon in an incremental way. Some of the Committee are well aware and have expertise, but Typhoon came in with a very basic operational capability—air-to-air only. If you look at it now—it is in the Falklands—it is capable of air-to-ground at a level of capability that is very, very impressive. If we were able to adopt that more regularly as a process by which we can introduce capability, provided we know that we have an investment path that will continue, then that will provide capability earlier. It gives the customer the chance to understand the equipment earlier; it gives the customer the chance to understand the support of that equipment earlier.

  Q271  Chairman: We will come on to incremental development and spiral development shortly. Mr King?

  Mr King: We have started off talking about relationships, if you like, and having man-marking in terms of relationships, but there is a number of availability-based long-term support contracts where that man-marking issue has been dealt with and the IPTs between industry and the MoD have been aligned—the Tornado availability contract, the ATTAC contract, as it is called, what has happened on Harrier, as Sir Brian Burridge said, how we have introduced Typhoon into the service, the new munitions structures, the terms of business agreements around the naval sector. All of those address both cost and capabilities to avoid duplication in both industry and in the MoD. I think it is recognised in the Bernard Gray report that in certain sectors we have made massive inroads into reducing duplication.

  Chairman: I want to move on. Can I ask you, Dr Wilson, to save it up for a future moment, please.

  Q272  Mr Crausby: Bernard Gray describes Through-Life Capability Management as "fraught with potential pitfalls in practice". Do you agree with that? Has the Defence Equipment and Support made any progress with the implementation of TLCM?

  Sir Brian Burridge: Bernard is right in the analysis of the way in which the DE&S is seeking to introduce TLCM because there is no doubt that they seem to be aiming for the gold standard right away; whereas if one looks at it through another lens and says, "What pragmatic examples are there?" the availability contracts that we have just heard about—the Tornado, Typhoon (now), Harrier, helicopters, Apache (the latest one)—that provides the first step, if you like, in a staircase of TLCM, but what the Department are trying to do is seek to trade across what they call "lines of development". In other words, if we invest a bit more in training, does that remove something from the equipment requirement, or whatever? Clearly, there is not a metric that allows you to trade across things as different as manpower, as doctrine, as equipment and logistics and information; so my long-held view is that the degree of complexity that they have invoked is because they are trying to run before they can walk.

  Q273  Mr Crausby: But it is achievable, is it?

  Sir Brian Burridge: It is achievable to a level, and I think the level of certainty is that you can reach a position where you can make trades between the equipment, its logistics, its information requirements and, potentially, the infrastructure that surrounds it—self-evidently, the size of a fleet of armoured vehicles versus the amount of simulation that is available, for example—but I do not believe that you can readily, at the outset, make a trade across all those things. I think that is terribly complicated.

  Q274  Chairman: Before we get off that, Mr Godden, would you like to say something about TLCM?

  Mr Godden: Yes, really just to repeat that there is a danger of throwing out the principles of TLCM, which must remain valid (and they do) despite some of the criticisms in the Bernard Gray report, and we would not wish to see the baby thrown out with the bath water on this because the simple version is effective and can be more effective. As it gets more complex, it becomes more difficult and we need to carry on the path of working towards that and not abandon that concept. It is a very important concept.

  Q275  Chairman: I do not think he recommends the abandonment of the concept.

  Mr Godden: No, but I think there is a risk that it will be seen as "Oh, this is all too difficult, therefore, let us put it to one side and say we have got too many other things to deal with." That is the worry, I think; that it will be perceived as too complex to do. Industry in other sectors finds it difficult so this is not unique to defence in terms of being able to implement it. It takes industries many years to adopt these principles, so we would encourage the Ministry to continue with those efforts.

  Sir Brian Burridge: It has to be said that the UK is a world leader in availability contracting, etc, and other countries look to our experience. I have particular experience in explaining to the Italian Government how all this works. So it is a key capability, and the aspects that have worked very well have taken a lot of cost out of the support of aircraft, etc.

  Q276  Mr Hamilton: As I understand Sir Brian, what he is really saying is go for the simplest contract first and then you can build upon that as you go through, but that will be dependent upon who the contractors were going to be, if they are in this country. If you opt for a simplistic approach and then you go for a contract outside the country, you bring all the technologists with that. So it is not as simple as you are saying, is it? It really depends on the issue of who has the contract to start with. I just want to be clear about that.

  Sir Brian Burridge: No, that is absolutely right, but, in the case of an off-shore purchase, the challenge is to make the supplier—who is the design authority, owns the safety case, so they are the major stakeholder in what you do—either to provide you from their own capability with an availability contract and construct in the UK or, as in the case of the Hercules, when that came into service, Marshalls of Cambridge, as it was then, was the on-shore design authority, so they were able to do everything that the manufacturer could do under licence. There are two ways of doing it, but it is essential that the customer understands that that is where they want to get to and it is essential that they explain to the potential supplier at the outset that that is where they want to get to.

  Q277  Mr Hamilton: So under licence should be a real issue for us?

  Sir Brian Burridge: I am sorry?

  Q278  Mr Hamilton: Under licence. If you take an American company, then it is really important for us at the outset that we talk in terms of making sure that we have the intelligence and, therefore, if we put it under licence, it means we have the rights.

  Sir Brian Burridge: Yes; absolutely.

  Q279  Chairman: Mr King, you want to talk about the Joint Strike Fighter.

  Mr King: In terms of having the licence at day one, the reason why you do need to have a Through-Life Capability Management plan, or a view of how you want to take that system or platform through life, is that that needs to determine what sovereign capabilities you do want in terms of a UK requirement and whether you can have access to those technologies. It is not just about the initial manufacturing and the support of it: you will want to upgrade that capability through life and, you are absolutely right, if you do not think about that at day one, you may be left without the ability to upgrade those capabilities to become operational requirements.

  Mr Hamilton: Thank you for clarifying that.

  Mr Crausby: Bernard Gray also concludes that the MoD has a shortage of people with financial and programme management skills. Why is it so difficult for the MoD to acquire and retain these skills? Is it just a question that there is an overall shortage throughout? Does industry suffer from these shortages?

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