Defence Equipment 2010 - Defence Committee Contents

Examination of Witnesses (Question Numbers 300-319)



  Q300  Mr Hancock: Could I, first of all, start with two general questions. As individuals, were you personally interviewed or consulted by Bernard Gray separately, and what was your view of the process that he went through? It would be interesting to hear if there is a different view on that. What was industry's view generally of the consultation and the efforts that were put in to try and make this as potent a document as he could?

  Sir Brian Burridge: I was certainly consulted—

  Q301  Mr Hancock: In a one-to-one capacity?

  Sir Brian Burridge: —individually, by Bernard and his team. We went over aspects such as Through-Life Capability Management in-depth, strategic partnering arrangements. You will recall that the first strategic partnering arrangement was with AgustaWestland post the Defence Industrial Strategy. What were our views on that? The business of man-marking, which was high on his list, and the depth of commercial and programme management skills, and, from my knowledge and my company's collective knowledge, we recognised that this was a suitably incisive methodology; it would recognise where problems lay. We perhaps thought that it may not come up with anything absolutely brand new, but it would not in any way undermine it for the telling. That said, it is a tough world in the public sector when you are dealing in an environment of constant financial squeeze; so one is always slightly reticent of continuing to beat up on the DE&S in that respect. There are some things over which they have no control, and the budget is one of them, but as a methodology, absolutely no qualms.

  Mr Godden: I would reinforce that. I was interviewed one-to-one twice and then had a discussion towards the tail end, so he consulted very effectively, and, in my opinion, it was a thorough process, a thorough analytic background and a set of interviews that was quite wide. Secondly, he did present and discuss openly at the NDIC meetings and he was quite comfortable with anybody calling him from DIC (Defence Industrial Council). From that point of view, the consultation was very strong and the implications from it were well discussed. It was very open. It was behind private doors, obviously, but it was a very open discussion about the implications and the nature of the problem. The implementation issues possibly could have required some further effort and time, but I think that was not necessarily timeliness on his part, that was the timeliness to get the report to a certain condition.

  Dr Wilson: I also had a one-to-one session with Bernard Gray. I did not major really on the source of the problems, because a lot of that, I think, was pretty obviously taken as read at the start of it, and concentrated more on where the solutions might lie. However, we did comment on the commercial process within MoD, the fact that there are certain aspects of that that were somewhat more routine that could be streamlined and our disappointment that that had not yet happened, and suggested that that might be a way forward, but then focused primarily on the so-called 80% solutions, the speed aspects, the risk aspects, and we gave him a short paper on the differences, as we saw it, between the standard equipment programme and the UORs and how the two could perhaps be brought closer together in some new hybrid procurement system. So we focused very much more, I think, on potential solutions given that things had to change, get faster and cheaper and with less risk.

  Mr King: I had a one-on-one with Bernard on this subject, and then we also agreed, as part of that process, what other access he should have to the various people in BAE Systems who were either involved in partnering or in other programmes. So we gave him free access to everything he wanted.

  Q302  Mr Hancock: What do you think he missed?

  Mr King: I personally think it is a fairly comprehensive report, to be honest with you.

  Q303  Mr Hancock: Industry is well pleased, are they?

  Mr King: I think we recognise it is a comprehensive report which addresses the key issues that have to be dealt with.

  Q304  Mr Hancock: So industry is well pleased?

  Mr King: I am not sure that the term "well pleased" is founded.

  Mr Godden: I do not think that reflects the sentiment in industry, as I read it anyway. It is pleased that it is out in the open—some of these issues that have been raised and developed—and I think there is a big debate about how to achieve this, and there is a slight fear in industry that it will be a document that will live as a document and will not have the sharp implementation associated with it. If you ask, "What does it miss?" perhaps it misses the people, leadership and implementation issues in addressing how this is going to become, not a change programme, but a reform programme, and that is, I think, the worry.

  Q305  Mr Hancock: Which is very different.

  Mr Godden: Which is very different. A change programme is one thing; a reform programme is another thing. That is my personal worry about it, that it becomes another change programme and it does not deal properly with the skills issue and the reform required to make decisions much, much faster, etc. So if there is a fear, the word "pleased" is not the right word to use for the industry. It is pleased that it is out in the open but it fears it being a wonderful report on the shelf.

  Q306  Mr Holloway: Does the MoD sometimes make it more burdensome for industry? For example, I cannot remember whether it was the Defence Committee or the Armed Forces Parliamentary Committee, but going down to Westland, the engineers there were fitting rifle racks for the SA80s on some helicopters, some Merlins coming from Denmark or somewhere. There were two Westland engineers fitting these rifle racks and there were seven or nine people from Abbeywood down for the day inspecting that they were doing it properly.

  Sir Brian Burridge: Clearly these things can happen, but, in terms of the way AgustaWestland at Yeovil run, and you probably will have seen it, there is a combined IPT. There are 200 MoD people integrated into the design, engineering and quality staff within the factory and, frankly, when it comes to dealing with either something like the Future Lynx programme and things like the Integrated Operational Support for Merlin, they are pretty seamless—it is one of the success areas—but let us be under no illusion, design authority, the safety case, particularly when you are doing modifications at speed, as you are in UOR processes, does need to be properly audited.

  Q307  Mr Holloway: Having tens of thousands of people working for the MoD whose job is precisely that, do you think sometimes it goes over the top?

  Sir Brian Burridge: No. This is interesting in the Gray report in leading to the conclusion of a government-owned contractor-operated acquisition organisation. What I would say is that the nature of the skills required, the number of people that can be afforded in DE&S means that the interface between the core of DE&S as an intelligent decider, the interface with industry, is inexorably moving towards the centre of DE&S. Complex programmes these days are likely to require alliances, and so one large company will have to manage the gorillas represented by the other parties in the alliance. So the degree to which you need what was the rather old-fashioned way of scrutinising every turn of the spanner has gone.

  Q308  Mr Hancock: Do you accept that industry itself has to have more realistic cost estimates in the early stages of programme development, and how could this be best achieved?

  Mr King: I am sorry?

  Q309  Mr Hancock: Do you accept that you, as the industry, need to produce more realistic cost estimates at the early stages of programme development, which would enable things to be much more fair? We always seem to be blaming the MoD for cost over-runs. They seem to accept responsibility for everything and industry looks blameless, except they are the ones who have charged more and taken longer.

  Mr King: There are two comments I would make to that. One is that sometimes in the early stages of contracts we reach for a commercial structure and a price far too early, rather than defining what is the solution you are trying to provide, so it tends to lead to extreme statements of requirements and not necessarily defining which party is best able to handle the risk. You tend to find that in the first stage of estimates it is very open-ended, all the risk largely sits with industry, which tends to inflate what you put in terms of the cost because that is the only option that you have to do. You would be much better down-selecting somebody based on the requirements and capabilities they have in the early stages rather than running a beauty parade with a big cost attached to it, because it is very open-ended, and then working with that party and really honing down to what is an acceptable cost against an acceptable risk and capability profile.

  Sir Brian Burridge: Some reassurance. The NDIC is working in partnership with the MoD to look at project initiation and really examine what it is you need certainty on before you proceed, because, as Bernard points out, a number of programmes have launched into life carrying really quite high risk which, had some attention been paid at the earlier stages (which was actually one of the pillars of SMART Acquisition) that could have been avoided. I think the key thing in any of these things is to consult industry early so as not to close off options or refine the requirement to the extent that it does impose additional risk and additional cost. If there was a more collaborative approach to these big capability programmes early on with industry so that everybody is on the same page with regard to the complexity and the cost and time aspects, then that would be a step forward, and it is beginning to happen.

  Mr Hancock: But going right back to the initial statement about willingness to change and to bring in SMART Procurement, seven or eight years have elapsed since secretaries of state were making those statements, and yet there is still this abject failure to achieve what you said was the key pillar—it was the only pillar really—of SMART Procurement.

  Chairman: We are just about to get on to that.

  Q310  Mr Hancock: It is Sir Brian's point there about why this has not happened.

  Sir Brian Burridge: I can give a very short answer. What has made it more difficult has been significant reorganisation along that time period. The three single Service commands into the DLO was the starting point—the DLO into the DE&S, the way in which the central customer was created here—so organisational change. The other absolutely consistent factor has been a budget which is insufficient to meet the aspirations, and that really does influence behaviour.

  Mr Hancock: What is your view on the spiral option?

  Q311  Chairman: Before we get on to that, Mr Godden, you said you did not believe in this conspiracy of optimism notion. Why not?

  Mr Godden: It is the language which I think is not quite right. It gives the feeling that it is over specification and under budgeting that is at the heart of this. The budget issues are clear, which we have just said, but it is the shifting requirements and the indecision around what the real requirements are and the changes to that.

  Q312  Chairman: What Mr Gray says on page 29 is, "Under current governance, while underestimating the cost of a programme can lead to criticism and delay in the delivery of the required equipment, it is highly unlikely to lead to forfeiture of the desired equipment. As a result, the Forces have an incentive to bid for as many equipments at as high a specification as they can. They also have an incentive to underestimate the cost of delivering this system." Do you think that is wrong?

  Mr Godden: No, it is not wrong, but it is incomplete in its view.

  Q313  Chairman: Do not worry; there is plenty more.

  Mr Godden: I think, just going back, it is the constantly shifting requirements as well. That is the point I am making.

  Q314  Chairman: So it is additional.

  Mr Godden: It is not just that there is optimism from the beginning. It is a requirement in order to get the budgets through.

  Q315  Mr Hancock: But it is a one-sided argument, is it not? Once again, all the blame falls on the MoD. They constantly change the requirement, but then, in some cases, industry has not been able to produce what they originally set out to claim to produce. The MoD have had to compromise because industry has been unable to produce what they set out for. So we have to be a bit equal.

  Mr King: Absolutely.

  Mr Godden: That is understood.

  Mr Hancock: But Gray does not recognise that.

  Chairman: Do you think that is fair?

  Mr Hancock: I do not think he recognises the fact that industry sometimes cannot deliver what they say they can. He does not mention it at all.

  Q316  Chairman: We can ask him about that when he comes in front of us.

  Mr Godden: I had not noticed he had not mentioned it, so you are pointing out something new, but the idea that a complex engineering project of the nature that we have got can always be on time and on budget because the risks are fully understood, etc—the risk pattern is a double risk and there is no doubt—and you see it in the scientific area—you are not able to predict, so there is an element by which industry will from time to time not have the right answers from the beginning. Absolutely. That is a feature of the risk sharing that was talked about earlier by Mr King. That risk sharing needs to be agreed at the beginning or very well understood, otherwise we do get into a "blame the other" culture, which is very unhelpful.

  Q317  Mr Hancock: Were any of you party to the suggestions that were being made in the report that certain elements in industry were favouring the spiral approach to development? What do you really see as the advantages and can it really, actually, once again, be delivered? It sounds good, but is it a deliverable option?

  Dr Wilson: Could I start on that. I am definitely a proponent of the idea of incremental procurement and spiral development. You asked a question earlier which I was going to at some point try and give an answer to. It was going to be asked as a question. If you went and asked the Army what they thought of the aspirations which had led to them not having a protected manoeuvre capability after nearly 20 years of programmes, perhaps they would suggest that they would be happy to have accepted an 80% solution, which was your question. In fact, one of my colleagues has had a conversation with a senior person within the Army, who says, "Yes, we might well have been better to do that", because they would have had something, they would have had that early capability delivered and then see mechanisms for incrementing it as the requirement changed. That is my very simple view of why an early delivery of an initial capability will go down very well with the Armed Forces in certain areas. I am not sure you can do this across all platforms or across all technologies, but I think it is fundamentally doable in quite a number of areas—armoured vehicles is one, communication systems is certainly another—and in those cases you can see ways in which incrementalism can help you. You have to take a technology view of this as well, because such things as computers, radios and other pieces of complex electronic equipment tend to get smaller and more compact and more readily adaptable to platforms over time and, therefore, there is no point buying 15,000 of them at day one when you need maybe 3,000 for the next few years and you can incrementally buy those at a constantly upgraded capability. So I think there is a lot to be said for incremental procurement and spiral development.

  Q318  Mr Hancock: Is it deliverable?

  Dr Wilson: Yes, of course it is deliverable. We are currently doing that on the Bowman programme.

  Q319  Mr Hancock: Go back, Sir Brian, to when you were in a leading role. Would you have been happy with that arrangement?

  Sir Brian Burridge: Yes. I should place on the record, I have never worked in acquisition, I have always been an operational person, but it gives you certainty on removing the previous capability, of the training programmes you need, the infrastructure investment you have to make. There is nothing worse than running on a fleet that you were not expecting to have to run on. If I use the example of fast jet aeroplanes, in the life of an aircraft like Typhoon, JSF, we are not going to change the engine airframe combination. These are now so integral that you will not see the progression that we saw, say, with the Spitfire or even the Harrier—totally different aircraft between the GR1 Harrier and the GR9. Capability in this era comes from software, sensors and systems. These are at the heart of capability, and all platforms ultimately will arrive at a point, perhaps somewhere around 2050, when that is true. Armoured vehicles, which at the moment are relatively unsophisticated, have more and more sophisticated architectures, more integration, use electronics in a much more sophisticated way. If capability is coming in that way and the electronics, as you have heard, over the lifetime of a platform inevitably has obsolescence about it, you have to solve the obsolescence, and you can do that at the same time as you increase capability: faster integrated circuits, etc, etc. If you lay that on to an availability contract, you can do that as part of the regular maintenance of the platform rather than have these huge return to works programmes where, as a front-line commander, you are denuded of your capability in sheer numbers and, as a matter of cost, it is a relatively inefficient way of doing it. So it is already happening with fast jet aeroplanes and it has the potential, as all types of platforms move through that sophistication curve, to be the way it is always going to be.

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