Defence Equipment 2010 - Defence Committee Contents

Examination of Witnesses (Question Numbers 360-379)



  Q360  Mr Hancock: It did not come out in this, did it? There was nothing hard-hitting saying, "We're going under if you do not do something".

  Mr King: The actions are stronger than the words. We have announced 3,000 redundancies across sectors of our business.

  Q361  Mr Hancock: I know, my constituents are some of them.

  Mr King: We do go to the MoD and talk to them about the consequences of decisions. For instance, on the decision around FRES slipping, or Warrior slipping, we said we would have to cut back on resources. You are quite right on the carriers, for a long time it was on/off and it does affect our employees and shareholders because they keep on listening to the rhetoric and you have to keep on saying, "This is a committed programme, we are building this programme and if we continue to build uncertainty into it, it will no doubt increase the risk profile which inevitably increases over time which inevitably increases cost".

  Q362  Mr Hancock: Is it possible for you to help that situation by informing Parliament regularly of where you are as companies with these various projects? I am thinking of in my own constituency where we have redundancies in the aerospace industry, layoffs in the dockyard, et cetera, all due to, one way or another, the Government being blamed for their lack of a coordinated approach to defence spending—you make your excuses. I am interested to know how you keep your employees and Members of Parliament informed of the problems you are experiencing. We have to be part of that answer somehow, do we not?

  Mr King: We do. We are committed. We give our employees a state of the nation assesment in terms of programmes, and then particular information on their own business, which is why, across the air sector and the land sector, we have announced what will happen over the next two years, whereas perhaps traditionally we would have done it over a shorter timeframe because we think we are being disingenuous to them if we are not telling them where the nature of this business is going.

  Q363  Chairman: Then you get criticised for being too close to Parliament.

  Mr King: That is fine.

  Q364  Mr Hancock: I would rather you did that. Say on the carrier project where you have got loads of SMEs who are waiting for the decisions to be made—

  Mr King: We have committed to the SMEs.

  Q365  Mr Hancock: You have?

  Mr King: Where the design is mature enough on the programme we have made full programme commitments to these people.

  Q366  Mr Havard: On this issue about longer term planning, certainty and all of that, what is your view of this idea that the Ministry of Defence will have a 10-year planning horizon with the Treasury? Is that a set of golden handcuffs or is that a positive move?

  Mr Godden: I think the industry view is that it is long overdue, that is one of the answers, but if you set that at a time of depressed economic conditions and say 10 years in a depressed time you get into an argument about whether the cyclical nature of the economy and the needs of the nation have been cemented in at the wrong time. We would assume a 10-year plan is then refreshed quite regularly as most 10-year plans can never survive the 10 years. The idea of an SDR every five years and a DIS as a follow-through to that is a sensible thing to do with a 10-year programme where you can make decisions about bringing things in and out of it and have to adjust, as all corporations do, to changing circumstances.

  Q367  Mr Hancock: Could you live with that?

  Sir Brian Burridge: Yes, we could. Absolutely.

  Q368  Mr Hancock: Knowing that it was definitely going to happen?

  Dr Wilson: Yes.

  Q369  Mr Havard: Are there positive benefits in it?

  Mr Godden: Huge benefits. For all those that live and work in the US, and there are lots of things wrong with the US and we can always bash ourselves versus the US, but the US is much less efficient than we are here in our opinion, the one thing that is absolutely clear is their commitment to longer term programmes and commitment to R&D associated with it is of great benefit.

  Q370  Chairman: Do you see any difference between the 10-year rolling budget proposed by Bernard Gray and the 10-year indicative planning horizon suggested by the Secretary of State?

  Sir Brian Burridge: Yes. We need to go back some many years to see when we had a 10-year equipment programme and, in parallel, a government intent on the way defence expenditure would be managed in that timescale. Not Treasury commitment, but intent. Without that your 10-year plan is not going to stand contact with the enemy. There needs to be a much clearer view of what proportion of national wealth is a government willing to commit to defence and security. It is as simple as that.

  Q371  Chairman: In practice, can one not look at the Bernard Gray report and the Government's reaction to it and think that the Government has diluted it to the extent that it sounds as though they are bringing in something similar to Bernard Gray, but it is not Bernard Gray-like so much as just a tinge of Bernard Gray at the bottom of the glass?

  Sir Brian Burridge: Until we see the colour of their money, in other words what they really do bring in, it is hard to comment. Your analysis so far is correct.

  Q372  Mr Hamilton: Is it not the case that an MoD/Treasury remit in a review would be wrong because surely the other part of that should be BIS?

  Sir Brian Burridge: That is absolutely right.

  Q373  Mr Hamilton: If we are talking about a skills base it must be wider than that double-edge. That is part of the problem we have got.

  Sir Brian Burridge: This is a national strategic resource and it has not been acknowledged as such, the degree to which both Government and the MoD in particular misunderstand or have failed perhaps to define accurately what they mean by "operational sovereignty", which is not really a good term, and the degree to which they need indigenous capabilities in order (a) to support the defence industry and frontline forces, (b) to generate the spin-offs in the wider economy, and (c) the connectivity with our university and education system. We have had a market approach to this for a very long time in the UK and this is at the core, the definition of what do we regard as an indigenous capability and why. It is not just about defence equipment.

  Q374  Mr Havard: There is an interesting discussion around all of these things in other parts of the world, not the least of which in the United States, on where and what is agnostic acquisition in relation to all of that, but we have not got time for that at the moment. The 10-year planning process seems to be a positive, but what that does not do in America is solve some of the other problems we were talking about earlier. It seems to me their percentage change of increase in expenditure from main investment to the end of the programme does not deliver any better in terms of timescale for delivery. Lots of the process issues that you discussed earlier about implementation of mechanisms are as equally deficient anywhere else. I notice Bernard Gray said: "There is no magic formula for acquisition reform". Thank you very much! I do not know how much that cost! That is true, however, is it not, that planning process will not necessarily resolve your other problems?

  Mr King: There is no system that you can go to in any place in the world and say, "You can import that into the UK" and that solves all those problems, you are quite right.

  Chairman: When you say you do not know how much that cost, as I understand it Bernard Gray did not charge for his review.

  Mr Havard: I do not know about that. Pro bono work for the Tories now! I do not go to that club.

  Q375  Mr Hancock: To follow up Dai's point, the very last sentence that Gray wrote was the one that Dai started to explain: "No evidence yet of a magic formula for acquisition reform that has been shown to deliver its intended benefits. Only time will tell in all these cases". There is not a single suggestion in here about where the future will be, is there? He says that he cannot find a solution, but he does not actually give too many ideas. Where were your ideas in this to help him try and find that? It is a pretty startling final paragraph, is it not? It is on page 229, the very last sentence in the book.

  Mr Godden: Some of the comments were made earlier and if we try to summarise them maybe it sounds like a coherent set of recommendations. The comments about the fact that we made progress, IPTs, et cetera, and using those as case examples for driving those into the 200 programmes and getting the best practice in through that, that is one mechanism for doing this. Secondly, the skill issue that we talked about, to really address that subject. That needs some heavy lifting to get it to happen in a way that is not discussed in there. Thirdly, the decision-making process and the risk-sharing. Those are three or four of the things that we believe are absolutely essential for this to go forward. You asked earlier whether we are pleased with the Bernard Gray report, and we said we are pleased that it is being used for this type of debate to go to the next stage. That is as far as it goes but, you are right, it does not go far enough.

  Sir Brian Burridge: Perhaps one of the criticisms is that it is easy to get hung up on the acquisition of equipment because the numbers are large and quite startling, but the ratio between the purchase price of, say, a fast jet aeroplane and its through life cost is 1:4. In interacting with Mr Gray, we made the point if you take a whole life view, which you must, then your support solution, availability contracting, is absolutely vital and that takes a long-term relationship, not only with the prime, who is the design authority, but also constructing the supply chain in a particular way. If you have a long-term relationship then you can run as a team and you can all put your skin in the game, as we say, you can all manage your bit of risk, but you cannot do that on a short-term basis.

  Q376  Mr Hancock: I hate to use this expression, but would the four of you say that things can only get better?

  Sir Brian Burridge: You never know until you know.

  Q377  Mr Hancock: Would your impression be that we are now about to turn a corner which will improve this situation?

  Dr Wilson: There are a number of suggestions now on the table which, if implemented, would make things better. I will point out a sentence in Bernard Gray's report on page 31, paragraph eight, and he is talking here about incremental procurement: "Many senior figures in the military and industry are keen on this approach, but unless significant steps are taken to subsequently reduce the pressure within the equipment programme it is unlikely to become a viable way of working". So we come back to that basic point.

  Mr Hancock: He did not say how that could be done. I read that paragraph and I thought, "Where is his suggestion?"

  Chairman: I want to get on to research and development.

  Q378  Mr Havard: Can I ask one other question related to that. I happened to see him on telly last night, by accident, and he said, "One thing the MoD has not got is anybody at the centre who can deal with scheduling" and that is the problem, this business about what is in the programme and what is not and how you make these decisions about entry, exit and those sorts of issues. What is your view of what that scheduling process should be? Where should that be? Is that not a political set of questions as much as it is an economic or capability set of questions?

  Sir Brian Burridge: There is some process aspect in that. The Ministry of Defence has a very elegant acquisition scrutiny process culminating in the IAB where they sign off on a particular acquisition solution to a capability or an equipment, but what they do not do is manage the integration of that into the broader financial programme. That is not seen as their job. That will end up with the Defence Management Board. I think Mr Gray takes some trouble to point out that the Defence Management Board is often not best placed to make those sorts of decisions.

  Q379  Mr Havard: So who should be?

  Sir Brian Burridge: It should be the IAB. They should judge affordability not only in value for money but in profiling and insertion in the programme and then deal with scheduling as required. This was one of the tenets of SMART Acquisition, that the Joint Capability Board would, in a sense, do this on behalf of the IAB, but where you are in a position of really tight resources, which we are now, it takes the higher level body to do it. The Defence Management Board is not particularly well placed to do it.

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