Examination of Witnesses (Question Numbers
340-359)
SIR BRIAN
BURRIDGE, MR
IAN GODDEN,
MR IAN
KING AND
DR SANDY
WILSON
8 DECEMBER 2009
Q339 Mr Jenkin: Chairman, I should
just draw attention to the entry in the Register of Members' Interests
concerning a charitable event that was supported by a defence
contractor. I think it is worse for you than that because is not
the Bernard Gray report rumbling the industry? A lot of people
think that the procurement process for the defence industries
has been—and it is not necessarily my view—a bit of
a racket and the party is coming to an end? Why is that an unfair
charge?
Mr King: I do not necessarily
think it is an unfair charge. There is no doubt about the uncertainty
that exists as we head inexorably towards the Strategic Defence
Review and the rhetoric that gets pushed around the Bernard Gray
report is challenging every programme. So, if you look at our
shareholder base, those people who invest in us, who put support
in us, yes, they are questioning where is the UK going. If you
then come back to one of the key issues which says that we have
to retain skills, so there is going to be a set of operational
requirements and a set of needs to be provided, it does not help
us in recruiting people, in sustaining people in this industry,
if there is that amount of uncertainty out there, which is why,
when I was asked to comment at first, I said that the important
thing is that we go through a very logical, valuable process of
the UK deciding what its foreign and security policy is, which
leads to a Strategic Defence Review. If you have to go back round
the route because it could be unaffordable, then at least you
have come up with a policy, which leads to a Defence Industrial
Strategy, and then we in industry can align our resources and
capabilities around that DIS. That is what our shareholders want,
that is what our employees want, and I think that is what the
Armed Forces want, because they need to know where this capability
is going to come from.
Q340 Mr Jenkin: I think that answers
one of my questions, which is, why have not previous reforms of
the procurement process worked, and we were talking about that
earlier, and it is basically because there was still far too much
uncertainty.
Mr King: There is a lot of uncertainty
and, as Ian Godden said, one of the issues is, do people believe
it can be implemented?
Q341 Chairman: Mr Godden?
Mr Godden: I was just going to
add that it is the implementation issue that I think is the fear.
You could say that if there was political will at this stage the
Bernard Gray type reforms or equivalent could be done out of sync,
as it were, with an SDR because it is an implementation operational
matter, and in one sense there is a fear that we have that the
next Strategic Defence Review and Defence Industrial Strategy
will simply focus on procurement reform and not deal with the
other very important strategic matters about capability, operational
sovereignty and the need for an industrial base, and that this
becomes the focal point and wrongly so. It is a feature of an
organisational and implementation aspect which we need to get
on with and it will be hijacked by the pressures on the budget
as a consequence of that, unfortunately, but it is not the biggest
signal in terms of industry worrying about the uncertainty, about
the future. That comes in things like the technology, which I
know we have talked about before, and research and development
comes into it, the programme decisions and the decisions about
what is the nature of what we are trying to fight, which is SDR
territory.
Q342 Mr Havard: The question is about
the Go-Co, but the truth of the matter is that there is not going
to be a Go-Co; there is going to be a strategy for acquisition
reform announced in the new year which will say there is going
to be a trading fund, because Bernard Gray says, "At the
minimum you should have a trading fund", and, when he looks
at the Go-Co versus the trading fund, basically they have the
same virtues. The only argument he makes is that one would be
a slower rate of change in terms of commercial thinking, skills,
best practices and so on, vis-a"-vis the other, so that is
the background reality, is it not, and is it not the case, if
that happens, that the fear you have just expressed is taken care
of, because this change to a trading fund and taking account of
these things that he lists will be done in the new year in any
event before a Strategic Defence Review? Is that right?
Mr Godden: If you read the tea
leaves, which I sometimes try to do, then you might say yes, but
I do not know for a fact what is going to happen in the new year.
Q343 Mr Havard: The Secretary of
State has made all sorts of statements about having a review.
I do not know whether you have been involved in the discussions
about such a review, because it is supposed to take place in the
early new year, but clearly he has rejected the Go-Co idea, he
has accepted the trading fund, so that is the objective reality
against which you plan, is it not?
Sir Brian Burridge: It is, but
that is not a quick outcome. It will take a long time to create
a trading fund out of the structure that they have already, and
it does provide the one advantage, necessity even, that a Go-Co
does not. Under a Go-Co structure I was hard pressed to understand
how, say, the Permanent Under Secretary as the Accounting Officer
would exercise his accountability because so much of decision-making
would potentially be outside his purview and I think he would
have a very difficult time justifying a programme, say, in 10
years' time that was run under a Go-Co arrangement. That is my
suspicion.
Q344 Mr Jenkin: Despite all the reforms
that the MoD has made and may be attempting to make, what has
industry done that has worked, that has improved the procurement
process?
Sir Brian Burridge: I think that
on availability contracting in particular industry has done an
enormous amount and I was on the other side of the fence in creating
the Tornado programme. My colleague was the person I was talking
to.
Mr King: He was my customer; nice
chap.
Sir Brian Burridge: And we both
had to move a long way in terms of our aspirations and develop
much better our understanding of who was best placed to manage
risk. It was not straightforward. It took about 18 months longer
than I expected but it broke the mould and it is that mould which
pretty much applies now to helicopters in terms of integrated
operational support. I think industry has done a lot in that respect,
programme management too. The future Lynx was the first post-DIS
contract with very long time lags or time distances between milestone
payments but very significant milestones, and that was a completely
different way of creating a contract.
Q345 Mr Jenkin: We do appreciate
that. We have in fact looked at the Finmeccanica example as an
exemplar of this. I am most struck by the comment raised earlier
about the lack of people with the relevant skills. Is that not
something the industry should be doing? Should there be a new
institute for defence acquisition management? Should we be developing
a new college to train the people that are required on both sides
of the divide in order to bring forward the volume of people that
we need to do this?
Mr King: We do have joint training
schemes. We have accredited our programme managers, we have accredited
our commercial managers, recognising this, and we do offer these
schemes both to the MoD and to industry.
Sir Brian Burridge: Following
the creation of the Defence Academy and real focus on acquisition
skills, I think it has moved a long way since the days when it
was the Royal Military College of Science focusing purely on weapon
technology. I think there is some very good management training
available. No doubt it is proving difficult for the MoD to release
people. We release people and it is difficult for us as well but
you have to make that investment.
Q346 Mr Jenkin: Do we require a step
change in the effort here?
Mr King: Yes.
Sir Brian Burridge: Yes.
Mr Godden: I believe we do. I
would say that there was one other programme we have started to
implement which needs a step change as well, which is the SC21,
the 21st Century Supply Chain programme, to make the whole supply
chain of the 3,000 companies that are in this game much more efficient.
Q347 Chairman: Was that not something
that was going to be addressed in the Defence Industrial Strategy
2?
Mr Godden: It has started and
it is early days, I would say. In civil programmes it has been
implemented faster, I would say, but on the defence side that
started about a year ago. I think it has got another three or
four years to run before you would claim it is going to get significant
implementation. It is implementation that is the issue, not concept.
We have got the concept, we are applying it and we are seeking
(which Baroness Taylor signed up to at Farnborough last year)
commitment from the MoD to the programme. We have got 550 signatures
out of 3,000. It is not the signatories that count; it is the
ability to get on with it. That is a programme that is ambitious
but needs a step up in terms of real, concrete results.
Q348 Mr Hancock: Can I just ask you
to clarify that, 500 out of 3,000? You say it is not significant,
the signatures; it is the attitude, I suppose, you are talking
about. Why were so few then interested in signing up physically
for something like that? Are they worried about something we have
not been told about?
Mr Godden: No. It is the smaller
companies, the £1 million to £5 million companies that
believe this is another example of bureaucracy coming from not
Westminster but from the south of England or international programmes
and so on, and it is a fear of realising that they are having
to do this. This is like any industry-wide initiative which all
corporations know about. If you apply that in your supply base
it takes a long time to get the full range of suppliers to accept
that principle. We are still in the missionary phase amongst the
small to medium sized companies who have come off the back of
four or five years of good economic growth and only really woke
up to the fact that they needed to do this as of, say, 2007-08,
and they are beginning to wake up to that in a big way now.
Mr King: As part of the revised
structures that have been put in place by the MoD with the Finmeccanicas,
the GDs and ourselves in these partnering arrangements, we ourselves
have had to learn the skills of how we partner with the rest of
the supply chain, and from the SMEs, quite rightly so on their
part, there would be slight antipathy at the start in trying to
determine whether we were in this for the long run and encouraging
them and developing new structures and new skills. I think we
are making good progress but we do need to recognise that the
UK has, I think, of all European countries, more SMEs than anybody
else, and we do need to spend time on this. Going back to a slightly
earlier question, what is the worst thing for us, the worst thing
would be a knee-jerk reaction which happened around what the budget
should be as opposed to a long-term Strategic Defence Review,
and in that interregnum we are going to really struggle with the
SMEs because they are the ones that are going to get hit first
in any cycle change.
Q349 Mr Havard: There are a number
of reasons why I asked the question earlier, and I noticed I did
not get an answer to it, which is whether or not you would be
involved in the discussion about the Strategy that is going to
be published in the new year, not the least of which is this question
about SMEs, which has been an issue that has been running for
years, about how they see themselves coming into the process and
how they can be involved in the discussion. What discussion is
taking place about SMEs and larger companies being involved in
that new Acquisition Reform Strategy that is just about to be
announced but which seems to be a mystery?
Dr Wilson: If I can make a comment,
there has been an ongoing dialogue before we get to this point
of producing a paper or a strategy at the start of next year about
how SMEs should be engaged. That has been quite a long dialogue
with the DMA as it was and is now continued by ADS, and with companies,
and I will give you one example of that. When we deal with small
technology companies which come up with very good ideas they find
it extremely difficult to survive in the defence environment until
their ideas can find some traction. My company has set up an R&D
technology pull-through mechanism which we have published widely
around the MoD, which has quite a lot of intellectual attraction
for the people in the S&T community and more widely and probably
forms the basis of some mechanism that could be used by MoD and
more widely by industry to pull technology through so that SMEs
are not left in this valley of death with great ideas that cannot
be exploited, so that does not answer your question either.
Q350 Mr Havard: It might do but is
it one of the things that is in the review?
Dr Wilson: It certainly has been
a view that has been put forward to the MoD on countless occasions
and I think it has now got some traction.
Sir Brian Burridge: In inputting
to the Green Paper we certainly put forward some views on acquisition
reform, particularly the strategic management of R&D, the
importance of a pragmatic approach to TLCM, and these are now
what will appear, I am told, as challenges in the strategy for
acquisition reform which will be published in parallel with the
Green Paper. Separately, as the DIC, we have been asked to put
forward three or four people to assist the authors with producing
their document.
Q351 Chairman: I am not sure that
that is very reassuring because I had the impression that when
the Defence Industrial Strategy was produced there were constant
discussions between the Minister and industry, and industry, so
far as I could see, thought it was a perfect example of clarity
and involvement. I am not getting the impression, partly from
yourselves—
Sir Brian Burridge: I would not
want necessarily to speak for the MoD but I do not think that
this will necessarily be a hugely detailed document. It is not
like the Defence Industrial Strategy. I absolutely agree with
you. The second version of DIS that follows this we would expect,
and I have no reason to doubt, to be deeply engaged in.
Mr Godden: There are small initiatives,
I would say, and I will use the phrase "small initiatives",
to consult on various aspects of what you have described. It is
a very short time frame and it is not a process that looks like
either the DIS process or equivalent in terms of a full consultation
over a period of time that we can collectively work through the
issues on. There is debate, there is dialogue, but it is of the
nature that Sir Brian mentioned, not some big formal process of
engagement.
Q352 Mr Havard: So it does not clear
your fear that in fact the other things will not be strategic
in a proper sense but will collapse into a whole detailed argument
about procurement and acquisition, so the acquisition issues will
not be resolved in description before we have the Strategic Defence
Review?
Mr Godden: It depends, I think,
on the follow-through from January.
Q353 Mr Havard: Is DIS more important
in doing that than the Strategy Review that has been announced?
Sir Brian Burridge: The DIS serves
us in a different way.
Mr Godden: Yes, it is a different
thing.
Sir Brian Burridge: And we, as
we have emphasised, need to understand the customers' requirements
in the sectors in which we operate.
Q354 Mr Havard: So in terms of this
argument that it is about implementation, which I tend to sympathise
with, the real argument is that the real working active document
that you require that probably the acquisition process would benefit
from is a new Defence Industrial Strategy in some detail now before
you have the defence?
Sir Brian Burridge: No.
Q355 Mr Havard: What is wrong with
that?
Mr King: We are concerned that
the Green Paper will be done in the absence of looking at what
the industry provides as part of the Defence Review. But we do
see that as just an input into an overall SDR, and then, as part
of the SDR itself, once it has been settled as to what the requirements
are, we would like a full and complete DIS done as to what the
industry's position should be in supporting the SDR.
Sir Brian Burridge: The common
thread in almost everything we have said this morning is the lack
of balance between the programme and the budget. The most sophisticated
way to bring that back into balance is to conduct a policy-led
defence and security review, cost it and ask yourself whether
that is affordable. If not, change your policy until it is affordable.
Otherwise, we do not get, and nor does the customer, a sustainable
view on where we are headed. As I think I said earlier, what we
look for is a force structure which is both affordable and sustainable
with a common understanding in each of these sectors of where
it is the MoD wants to go.
Chairman: I want to move on to David
Hamilton.
Q356 Mr Hamilton: Chairman, there
is just one part strikes me and it was Dr Sandy Wilson, I think,
that answered it, and that is about the SMEs. The SMEs were extremely
critical, not of the MoD but of yourselves because what they were
finding when we did the Report the last time was that they were
being asked to take all the risk of design and so on and when
they were getting selected one would be selected out of five and
they were carrying the burden. I understand from your comments
that that has somewhat changed and, in terms of the partnership
question that Ian King indicated earlier, there is much more partnership
taking place now.
Mr King: Yes.
Mr Hamilton: My problem is this. At the
very beginning of the discussion in the evidence session we talked
about, and Dai has touched on it, clarity of purpose. If we get
the clarity then we can deal with the issue. The problem I find
is that you never bite the hand that feeds you. None of you is
biting the hand that feeds you, and I understand that, but we
have got to try and work our way through that. My problem is that
we have not got the clarity even though the Strategic Review is
there. Is it BERR now they call it? It used to be DTI. They are
now making it quite clear that we should diversify away from finance
and build up our manufacturing base. If we have got a department
that is saying this then why can we not get together and sit down
and work out a strategy? I know it is very simplistic but I think
the easiest way forward is a straightforward way of doing things,
but you cannot do that if you are continually moving from bit
to bit where we say we do have a manufacturing base and we want
to maintain that manufacturing base, as we did with shipbuilding,
and then the next thing we do is give contracts out to foreign
countries where we do not have a—
Chairman: So the question is?
Q357 Mr Hamilton: The question is:
are the SMEs getting a fair deal? Are you getting a fair deal?
It is about time you started to argue your corner rather than
being diplomatic. I tell you, it is like sitting with a bunch
of parliamentarians.
Dr Wilson: Just one comment on
that. The engagement with BIS is now much greater than it has
been in the past. In fact, Ian Godden and I were talking with
Lord Drayson just the other week about, amongst other things,
the skills issue that we mentioned earlier and some ideas that
might accelerate the focus of the education system on producing
those skills. There are many interesting issues being debated,
all of which are there to sustain this really quite significant
part of the manufacturing base of the country.
Mr Godden: As the person who often
gets his hand bitten off—
Q358 Mr Hamilton: I notice it is
the Scots by the way!
Mr Godden: —and has put
the case forward, there are two features of it. One is the economic
impact of the defence sector on the wider economy, industrial
activism, manufacturing technology, et cetera, and that is one
that we have believed very strongly in and believe there is further
work to be done. Progress is being made in terms of making sure
the BIS type Innovation and Skills Department is fully aware of
what is happening in what has historically been a narrower Defence
Industrial Strategy which has been within its own vertical and
the wider impact on the economy. Secondly, the recognition of
the SME community, which is growing, and I think we were the first
to point out 3,000 companies in the UK is more than France, Germany
and Italy SMEs added together. We are promoting the interests
of the SME community in large measure. In terms of the individual
relationships between large companies, medium-sized and small
companies, and I would differentiate between those three, not
just two, it is up to the individual companies how they conduct
their business, but we see that dialogue taking place quite actively
in a way that before has been a little bit split apart. That debate
is happening and that discussion is taking place—civil aerospace
side and defence. We are having a big debate about that on the
space side at the moment and there is an even greater debate on
the security area where the relationships have historically been
quite fragmented with small companies and government. That is
a big part of our agenda. You are right, there is work to be done
but it is underway and hopefully we will see some results in the
next year or two.
Dr Wilson: Can I come back on
the issue of SMEs and some of the issues that we face over the
next couple of years. We all welcomed the SDR and the rebalancing
of our international posture and defence posture, but the time
it takes to do a proper SDR is not instant. Very few SMEs are
sitting with fat order books with several years of sales that
allow them to weather any reduction in order output by a principal
customer such as MoD. Therefore, the SDR really ought to be conducted
on a timescale which does not have a terribly deleterious effect
on their business. One fears that when we get into the purdah
that is always associated with an SDR there will be some fallout,
especially in the SME community, and it will cascade down through
the primes, the mid-tiers and finally hit hardest those who are
least able to cope.
Chairman: That is a problem well made.
Q359 Mr Hancock: That uncertainty
is not a good value one, is it, and it has persisted for a long
time. The carriers are a good example, are they not? Every time
a secretary of state or a minister speaks about the Navy or the
aircraft carriers there is an on/off switch that the media relates
to and there is a scare story about whether the carriers are ever
going to be put in the water, et cetera. There has to come a time
when industry say, "We can't cope with this state of limbo
or on/off situation" and at some stage you are going to have
to say, "We cannot go on operating like this" and Government
is going to have to listen. It is not only the businesses that
are at stake but the tens of thousands of jobs that are on the
line all the time. With this on/off business and indecision, lack
of speed giving clarity of thought into these issues, when are
you going to dig your heels in and say, "We cannot sustain
British industry on this method of doing things"?
Mr King: We are already making
those decisions.
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