1 DE&S progress and performance
6. In this Chapter, we consider the structure
and performance of defence procurement. DE&S was formed on
1 April 2007 following the merger of the Defence Procurement Agency
(DPA) and the Defence Logistics Organisation (DLO). The aim of
the merger was to create a new integrated procurement and support
organisation. DE&S is headed by General Sir Kevin O'Donoghue,
Chief of Defence Materiel (CDM), who, together with other senior
colleagues, gave oral evidence in this inquiry. A year ago, in
our Report Defence Equipment 2009, we concluded that "some
20 months after the merger DE&S appears to have made good
progress and is considered to be heading in the right direction".
However we also identified concerns that the equipment programme
was under-funded and that this was contributing to slippage in
time and costs. During
last year's inquiry, MoD witnesses were unwilling publicly to
agree that this was the case.
7. During 2008-09, the MoD spent some £5.6
billion on its core equipment programme and delivered equipment
valued at £3.1 billion.
During 2009, information emerged which confirmed the existence
of a significant funding gap, and which suggested that the management
of this gap was affecting the ability of DE&S to deliver the
equipment programme. This conclusion was confirmed in the Major
Projects Report 2009, in which the NAO attributed the problems
primarily to the MoD's attempts to manage the discrepancy between
the costs of its ten year equipment programme and the allocated
budget. It reported:
The size of the gap is highly sensitive to the budget
growth assumptions used. If the Defence budget remained constant
in real terms, and using the Department's forecast for defence
inflation of 2.7 per cent, the gap would now be £6 billion
over the ten years. If, as is possible given the general economic
position, there was no increase in the defence budget in cash
terms over the same ten year period, the gap would rise to £36
The NAO stated that, for 2008-09, "two-thirds
of the gross cost increases reported in the Major Projects Report
2009 reflect deliberate decisions to slip projects, taken corporately
by the Department as part of a wider package designed to address
a gap between estimated funding and the cost of the Defence budget
over the next ten years."
It also concluded that there were "encouraging signs of improved
performance in managing individual projects" and that the
cost increases were not an indication of poor performance of MoD
staff or industry, but rather that a significant proportion was
attributable to the overall management of the programme against
the budget available.
8. These comments refer only to the core equipment
programme, and not to the MoD's arrangements for supporting operations
through the fast-tracked acquisition programme of urgent operational
requirements (UORs). UORs were originally funded in total via
additional Reserve funds from the Treasury, but changes were announced
in November 2007 which meant that the MoD would have to contribute
half of any costs which exceeded a total amount agreed with the
Treasury to reflect the likelihood that much of the UOR equipment
would be incorporated into mainstream planning. We commented on
this change, and on the performance of the UOR programme, in our
Defence Equipment 2009 Report.
Whilst we concluded that we were broadly satisfied with the UOR
process, we also expressed concern that "the extent of UORs
represents at least a partial failure by the MoD to equip adequately
its forces for expeditionary operations which were anticipated
by the Strategic Defence Review a decade ago".
This view was echoed in the Gray report which stated that:
In the face of actual operations, even the most efficient
acquisition planning and procurement would leave gaps that would
need to be filled urgently. However, given the longevity of current
operations, an agile acquisition process would have absorbed more
of the extraordinary requirements as they became self-evidently
The demands of current operations have also required
savings to be made from the core defence budget. One of the two
objectives of the short examination of the equipment programme
which was conducted in 2008 was to identify savings in the equipment
programme so as to provide more support for current operations,
and on 15 December 2009, the Secretary of State announced a number
of cutbacks in order to make savings to enhance support to personnel
on operations in Afghanistan.
9. We review progress on key programmes in the
following paragraphs, and return to the issue of the funding gap
in Chapter 3. In Chapter 4 we consider other factors relating
to performance progress within DE&S, such as skills improvements
and the implementation of through life capability management,
within the context of procurement reform proposals.
10. The ability of DE&S
to deliver the equipment programme is overshadowed by the existence
of a funding gap which the NAO estimates could be as much as £36
billion over the next ten years. The management of this funding
gap, in particular the practice of delaying projects already underway,
is a major factor in the slippage of time and costs, and makes
it difficult objectively to assess the performance of DE&S.
It has been suspected for some time that this situation existed.
We welcome the public acknowledgement of the issue and the provision
of data about the extent of the problem. We accept the NAO's analysis
and wish to record our disappointment that it has taken the MoD
so long to admit to the problem. The evidence we have received
indicates that the MoD's responses to our questions about the
funding gap in our Defence Equipment 2009 inquiry were at best
confused and unhelpful and at worst deliberately obstructive.
Progress on key programmes
SHORT EXAMINATION OF THE EQUIPMENT
11. A key event which took place during our Defence
Equipment 2009 inquiry was the MoD's short examination of the
equipment programme. During the Defence Procurement debate on
19 June 2008, the Minister for the Armed Forces announced that
the MoD was "undertaking a short examination of the equipment
programme to look at our planning assumptions over the next ten
MoD Annual Report and Accounts 2007-08 set out the objectives
of the exercise:
The examination of the equipment programme will focus
on two issues above all: bearing down on cost increases to equipment
programmes; and rebalancing the equipment programme to better
support the frontline. The examination will be focused on identifying
potential savings to the equipment programme in order to support
the frontline and our people at home better.
12. On 11 December 2008, the then Secretary of
State announced the key conclusions from the short examination.
These included the allocation of additional resources for UORs,
and a number of decisions relating to the equipment programme.
The key capabilities referred to in the Statement were the Future
Rapid Effect System (FRES); Future Carrier; Military Afloat Reach
and Sustainability (MARS); and helicopters. In summary the decisions
- To restructure the FRES programme,
giving priority to the Warrior Capability Sustainment Programme
and to the FRES Scout over the FRES Utility Vehicle;
- To delay the in-service date of the two new carriers
by one and two years respectively;
- To consider alternative approaches to the MARS
fleet auxiliary programme procurement and to defer the fleet tanker
- To spend £70 million from the Reserve to
upgrade 12 Lynx Mark 9 helicopters with new engines.
During our Defence Equipment 2009 inquiry, Quentin
Davies MP, Minister for Defence Equipment and Support, told us
that he considered that the short examination had "achieved
its purpose" in relation to both of its objectives.
We consider the impact of these decisions in the following paragraphs,
together with issues related to other key programmes which have
been subject to time or cost overruns.
FUTURE RAPID EFFECT SYSTEM (FRES)
13. The FRES vehicle programme has had a long
and difficult history, on which we have commented several times
over the years. In 1998 the MoD decided that the Army required
a fleet of armoured vehicles to fulfil the expeditionary role
envisaged in the Strategic Defence Review, and FRES was established
to meet this need. Early 'concept work' was carried out between
2001 and 2003, and in 2004 the MoD announced a two year Initial
Assessment Phase. At this stage the FRES programme was expected
to deliver 3,000 vehicles in 16 battlefield roles and would comprise
three families of vehicles: Utility, Heavy and Reconnaissance.
The MoD planned to deliver the Utility vehicle (FRES UV) first,
but the requirement was challenging and the programme was subject
to delays. In February 2007 we published our Report The Army's
requirement for armoured vehicles: the FRES programme, in
which we noted that the expected In-Service Date for the FRES
UV had slipped from 2009 to the early part of the next decade
and concluded that the MoD's attempts to meet its medium-weight
vehicle requirement had been "a sorry story of indecision,
changing requirements and delay". 
14. We continued to monitor FRES progress in
our Defence Equipment 2008 and Defence Equipment
2009 inquiries. In October 2008 the MoD announced that
700 new armoured vehicles were to be procured to meet urgent operational
need, but CDM assured us in November 2008 that there would still
be a requirement for FRES and that the MoD "was pretty clear
we know what it is".
In December 2008 the MoD announced that despite having awarded
provisional preferred bidder status for the FRES UV vehicle to
General Dynamics UK only seven months previously, it had been
unable to reach agreement with General Dynamics UK on commercial
considerations, and, as a consequence of the short examination
of the equipment programme, it had decided to withdraw that preferred
bidder status, restructure the FRES programme and give priority
to the Warrior Capability Sustainment Programme and to FRES Scout
over FRES UV. In February 2009, in our Defence Equipment 2009
Report, we concluded that "the FRES programme has been a
fiasco" and that "the FRES Utility Vehicle programme
was, from the outset, poorly conceived and managed".
The MoD did not accept our conclusion.
15. By October 2009, the Minister for Defence
Equipment and Support was describing the FRES UV programme as
"a perfect disaster" and said that "I have now
stopped the FRES programme".
The MoD's written submission to us in November 2009 appeared to
contradict this, as it included an account of the next steps to
be taken in the FRES Specialist Vehicle programme, a statement
that the MoD was now considering the best way to take the FRES
Utility Vehicle procurement forward and a restatement of the objectives
of the overall FRES programme.
In oral evidence we received different explanations from the MoD
as to the current status of FRES. CDM told us that "it is
really good news"
What [the Minister] stopped was the FRES Utility
Vehicle programme; and he stopped it because the priority changed
to FRES Scout. The competition is ongoing. There is a selection
process going on at the moment. I would be very disappointed if
we do not get FRES Scout out on contract February/March next year.
He explained that the two contenders for the Scout
Vehicle competition were vehicles that were in existence and that
the MoD was not "designing them from nothing".
He added that "we will need to come back" to FRES UV.
CDM strongly refuted the suggestion that FRES was still a fiasco,
and stated that "We have turned a corner, as we have in a
number of projects".
However, when giving oral evidence two weeks later alongside the
Minister, he accepted that FRES was "buried".
16. The explanation given by Dr Andrew Tyler,
Chief Operating Officer, DE&S, was that:
We have stopped the FRES programme as it was previously
conceived. We have restructured, we have recast it now into a
set of individual vehicle projects, the first one of which is
the Scout project; and it is still bearing the tag "FRES"
because that is its provenance in terms of its requirement; and
we are still sustaining this crucial factor that the vehicles
need to be able to operate with each other and indeed operate
with the other legacy vehicles, and indeed operate with dismounted
soldiers. That system (the "S" of FRES) remains a very
important thing. We need all of our assets on the battlefield
to be able to talk to each other and work together. In that sense
the system part of FRES lives on.
With regard to lessons learned, Dr Tyler said that:
When we look back in the rear view mirror now and
think about why it was that FRES was not successful in getting
to where it needed to be in the time, is because we were overemphasising
the nature of this sort of system, of trying to bring all these
vehicles together. What we have done subsequently is said "We
must not lose sight of that but we must also recognise that what
we are trying to do is to deliver individual families of vehicles
to meet particular needs of the Army".
17. The explanation of the Minister for Defence
Equipment and Support was that "the FRES programme is dead".
He said that the original programme was "too idealised a
vision" which had taken "a very long time to agree on
specification" and that it "was very difficult to procure
accepted that there had been mistakes, saying that "I think
[FRES] was a sad and sorry story and we have changed, and I take
full responsibility for that. We have changed the strategy entirely
in this matter".
He explained the strategy which he now intended to adopt:
So what I want to do, and what we are doing in this
particular case, is not to go in for these idealised solutions
but, wherever possible, to try to find something that is in this
world which either can be obtained and has been tried and tested
or can be modified slightly in a clearly defined way and will
meet a large proportion of our requirements. Whether it is 70%
or 80% or 95% you can always argue about, but I prefer to go with
something that is concrete and actually exists than some sort
of image of something which might be totally ideal.
The Minister told us that he intended to ask the
Army Board to propose another name for the programme, since FRES
related to a concept which no longer existed.
He said that "the degree of commonality is not practical
because we will be procuring quite different vehicles from different
manufacturers and so that concept is not valid, it is dead".
He added that the MoD would still be procuring a Utility Vehicle
and that his objective was to have it in service in 2018.
He summarised the main elements of the new vehicle programme as
We have three major core armoured vehicle programmes
at the moment apart from the vehicles procured to Afghanistan,
and they are the Warrior upgrade [and] the reconnaissance vehicle
I hope contracts for both of those will be signed within
the next two or three months
and then there will be the
Utility Vehicle which we will be procuring over a longer timescale.
We will find some name to encompass and encapsulate those three
18. Dr Sandy Wilson, President and Managing Director,
General Dynamics UK Ltd, suggested that such an approach would
have been better from the outset, saying that:
I think if FRES had been procured earlier with either
the specification that existed or some lesser specification, then
it would have been perfectly possible to get into service a protected
manoeuvre vehicle that would have given the Army all of the capability
that it currently needs in Afghanistan, plus additional capacity
for contingent operations.
The sticking plaster of a solution which was adopted
is to procure what are called protected mobility vehicles rather
than protected manoeuvre vehicles, which have limited off-road
capability, and that then gives you problems in your tactics as
to where you can go to avoid some of the threats, such as IEDs,
that you are constantly going to find embedded at the tracks and
roads and places that these vehicles can go.
19. With regard to the spend to-date on FRES,
and the outcomes of this spending, a follow-up written submission
from the MoD stated that:
The total spend on the FRES programme to 30 October
2009 was £189m (inclusive of non-recoverable VAT). The total
spend on the FRES programme to 30 October 2009 was £189m
(inclusive of non-recoverable VAT). None of this money. The knowledge
gained has refined our understanding of the requirement; reduced
technical risk; and up-skilled the project team with specialist
management and integration. This all continues to have a direct
or indirect benefit to the FRES programme as it moves forward.
Vice Admiral Lambert, Deputy Chief of Defence Staff
(Capability), said that one programme board would deal with all
of these vehicles, as well as with vehicles procured under UORs.
He explained that "We will have to look at what point another
vehicle ought to come in and replace those vehicles important
to UORs or whether we can run the UORs and have a replacement
vehicle a little bit later. So that is all looked after in the
same programme board."
20. There has clearly been a
change of direction with the armoured vehicle strategy, although
it is not evident whether this is just a change of priorities
and programme name, or whether there has also been a more fundamental
shift in strategy. It is also unclear whether the change in direction
is purely a result of the funding gap, or whether it is because
of a considered analysis that the original concept is no longer
appropriate. We have tried on many occasions in the past to elicit
details about FRES from the MoD without ever receiving clear answers.
We conclude, with regret, that the MoD has none to give. The MoD
must provide us with a written statement of its armoured vehicles
strategy, together with a schedule of the key events and decisions
to be taken in the next year and an indication of the required
delivery dates of each part of the programme.
21. With regard to the FRES
programme, we received no evidence of any systematic attempt by
the MoD to understand the reasons for past mistakes or to consider
how they could be avoided in the future. We call upon the MoD
to ensure that the lessons of the FRES programme are fully identified,
understood and set out in response to this Report, and ask the
MoD to provide an explanation as to how it will take heed of these
22. The A400M military transport aeroplane is
another programme which has been subject to significant time slippage.
The A400M is a collaborative programme involving seven European
nations (Germany, France, Turkey, Spain, Belgium, Luxembourg and
the UK). The A400M was selected to meet the requirement to lift
armoured fighting vehicles and to move large single items such
as attack helicopters and some Royal Engineers' equipment and
is intended to replace the remaining Hercules C-130K fleet. The
programme has been subject to delays because of the complexity
of the project and technical problems, which we commented on a
year ago in our Defence Equipment 2009 Report, stating
that "It is extremely serious that the A400M transport programme,
which is to provide much needed new tactical and strategic airlift
for our Armed Forces, is now running two years late and further
delays cannot be ruled out".
CDM told us that he did not think that the time lost could now
be made up. 
23. The NAO Major Projects Report 2009
The contractor, Airbus Military, has already acknowledged
that it underestimated the complexity of the project and its technical
aspects, and these have caused the programme to slip its introduction
into service. The cost escalation related to the slippage is predominately
driven by Inflation, Exchange Rates and associated cost of capital
changes, although the specific breakdown of these factors is currently
commercially sensitive. In July 2009, the seven partner nations
re-stated their commitment to establish a satisfactory way ahead
for the project, and intensive work is continuing between partner
nations and Airbus Military.
The MoD Annual Report and Accounts 2008-09
noted that the MoD was "concerned by delays to the A400M
programme" and that "a number of options are being considered
as a contingency to mitigate any potential capability gaps that
may arise". CDM told us that "The air bridge, which
is absolutely vital to Afghanistan, is surviving. I would still
describe it as fragile. It is still my highest logistic risk,
but it is surviving. What we cannot do is any of the other contingent
operations which we should be able to do without using aircraft
from that strategic bridge."
With regard to the capability gap, he said that the contract for
Future Strategic Tanker Aircraft had been signed, and the option
of procuring one or possibly two C17s was being considered.
CDM added that these would not be suitable long term alternatives
to the A400M:
C17s are very expensive; they give you a certain
capability. In very simple terms, an A400M carries twice what
a C130 will carry and a C17 carries twice what an A400M will carry.
The A400M is going to be a good aircraft when it comes into service;
it is going to be invaluable. The C130, perhaps, is right at the
bottom, tactical end of the market. The C17 is very expensive,
very competent, very capable, at the strategic end of the market,
and there is a gap in the middle.
On 15 December 2009, the Secretary of State announced
There will be an additional C17 aircraft to strengthen
the airbridge, and improvements to defensive aids suites and support
arrangements for the Hercules C130J fleet so that we can maximise
their deployability and use.
24. The A400M made its first flight on 11 December
2009. The Minister for Defence Equipment and Support told us that
he had witnessed the flight and had attended a ministerial meeting
of the partner nations to discuss the way forward and future negotiations
regarding the delivery schedule and contract with the manufacturer,
EADS (Airbus Military). He explained that:
I remain committed to trying everything possible
to save this particular programme. I think it would be a great
aircraft. I think it meets our requirements extraordinarily neatly,
and my own instinct
is that the technical problems of this
aircraft can be resolved. Whether we can resolve the commercial
and financial issues satisfactorily in the timescale required
I do not know and I cannot really express a view on that today.
The Minister told us that the partner nations had
agreed a joint letter to be sent to EADS, asking for a response
by 31 December 2009.
With regard to the expected In-Service date of the A400M, the
Minister said that there was likely to be about three years' delay
compared to the original schedule and that deliveries were likely
to start in 2014.
He added that "If and when we can renegotiate this contract
there will be a precise delivery schedule in the contract
and there will be liquidated damages if that new delivery
schedule is not reached".
25. The MoD Annual Report and Accounts 2008/09
highlights issues relating to collaborative programmes as a factor
contributing to shortfalls in procurement performance:
Whether it is major US projects where the UK is a
minor partner, or European projects where the motives for collaboration
can vary considerably, the UK is less able to influence outcomes
compared with projects entirely within our control.
CDM told us that "The lesson I draw from [the
A400M project] is collective projects are essential. If you do
not collaborate with partners, then you will not get the kit you
want because the production numbers are so small.
have got seven or eight partners, they have all got a view
It is very difficult to cope with that. My preference would be
a bilateral product which others could join. That would be my
added that he would be able to provide further details about that
conclusion in "about six months", after the completion
of current commercial discussions.
26. The delivery schedule of
the A400M has been delayed by at least three years because of
technical problems and ensuing contract renegotiations. The MoD
told us that planning is in place to address the capability gap.
While the announcement of an additional C17 is welcome, and will
ease the airbridge fragility, it does not answer the question
of how the capability gap arising from the delay of 25 A400Ms
to replace the remaining C130Ks, which were procured in the 1960s
and are already incrementally being withdrawn from service, will
be addressed. The MoD should give us sight of its contingency
plans, as soon as the way ahead for the A400M programme is decided.
27. It is encouraging that the
first A400M flights have taken place, although it remains to be
seen whether the project can be put back on course. Negotiations
are difficult because of the need to accommodate the demands and
different governance arrangements of all seven partner nations.
The A400M submission for Main Gate approval did not appear to
incorporate the lessons of earlier multi-national projects and
we ask the MoD to explain why not. The MoD should provide to us
by the end of September 2010 a written evaluation of the lessons
learned from the A400M experience which will establish the most
effective basis for future collaborative projects.
FUTURE CARRIER AND JOINT STRIKE FIGHTER
28. We examined the progress of the Future Carrier
programme in our Report Future Carrier and Joint Combat Aircraft
Programmes which was published in December 2005,
and in our Defence Equipment 2008 and Defence Equipment
2009 Reports. During the Defence Equipment 2009 inquiry, we
heard that, only six months after awarding contracts to build
the carriers and announcing in-service dates in May 2008, the
MoD decided to delay the entry into service of the first carrier
by one year and the second by two years. In our Report we called
on the MoD to provide a more robust estimate of the cost of this
delay and noted that whilst the delay might achieve some short-term
savings, the longer-term costs were likely to be substantially
increased. We also questioned how the delays would be managed,
and how the existing capability would be extended.
29. The Written Ministerial Statement of 11 December
2008 which announced the delays stated that "We have concluded
that there is scope for bringing more closely into line the introduction
of the joint combat aircraft and the aircraft carrier. This is
likely to mean delaying the in-service date of the new carriers
by one to two years."
In oral evidence to us in December 2008, the Minister for Defence
Equipment and Support appeared to suggest that in fact the key
reason for the delay was the need to make short-term savings,
stating that "
this was an opportunity
our spending plans in a way which involved no defence costs, but
simply made the delivery date of the carriers rather more rational".
He said that there would be no loss to the defence capability
and described the delay as "a kind of free hit".
The Minister confirmed this reasoning in his oral evidence to
us in December 2009:
We needed to make some savings in the futurewe
needed to find some money, we needed to find some roomand
looking at the defence capability costs of any of the alternatives
which were before me, they all had costs, they all had unforeseen
features. It occurred to me immediately
that we could delay
the carriers without a loss of capability because the aircraft
that we were going to use on the carriers would not be available.
30. The NAO Major Projects Report 2009
provided the following information about the costs of the Future
The Queen Elizabeth Class aircraft carriers were
subject to an Equipment Examination decision which has increased
the overall forecast cost of the project by £674 million
The primary aim was to constrain expenditure on the project during
the four years commencing 2009-10 by slowing the rate of production.
The Department expects this slowdown to yield a total reduction
in spending of £450 million in the years 2013-14. After this
time costs are forecast to increase by £1,124 million. The
net increase in costs of £674 million comprises £300
million of direct costs (for example, extending the design and
engineering team by two years) and £374 million additional
inflation due to the extended programme.
The Minister for Defence Equipment and Support confirmed
these figures, saying that:
When you push things forward it always involves a
cost and I do not dispute that and do not deny that. It is a substantial
cost, £674 million is over ten per cent of the cost of the
two carriers, which is about £5.2 billion.
31. CDM confirmed to us that the figure of £674
million did not include the cost of running on the existing carrier
to NAO data, it also did not include the £234 million cost
of additional capital charges.
We were told that there was an offsetting saving of not operating
the new carriers during those years, although the older carriers
were more expensive to operate in efficiency terms in some respects
and that the cost of refitting HMS Illustrious was not
included because it would anyway have been refitted on the original
timetable. The MoD
written submission stated that "Although costs have increased
on the programme as a result of the Equipment Examination decision
and other economic factors, these additional costs will be managed
by the Department. In conjunction with the ACA [Aircraft Carrier
Alliance] we continue to work hard to drive down costs in order
to agree the Final Target Cost for the Carriers in 2010."
MoD witnesses were unable to provide further explanation as to
how they would manage these costs, other than to say that "That
is one of the pressures we have to take into account in our planning
process, along with all the other fluctuations in the programme."
32. CDM gave us an assurance that the Future
Carrier and the Joint Strike Fighter (JSF) programmes were now
aligned in terms of timing.
He said that three OT&E (Operational Test and Evaluation)
JSFs had been ordered and would be delivered into the test programme
in 2012, at which stage UK pilots would participate with US pilots
in an integrated test programme in the USA.
CDM told us that "up to 150" JSFs would be procured,
but that a decision on the exact number would not have to be made
until 2015 and that
after that "they will come off quickly".
A further issue affecting the JSF programme is technology transfer,
which would provide the UK with operational sovereignty. In our
Defence Equipment 2009 Report we noted that the MoD considered
that the technology relating to the programme was being transferred
on schedule. However, recent newspaper reports have suggested
that US officials have ruled out the technology transfer of source
codes on the JSF, even to close allies such as the UK.
33. When asked whether the MoD was confident
that the existing carriers and aircraft would be capable of operating
until the new carriers were available, Vice Admiral Lambert told
us that "The aircraft are capable of flying, operating until
at least the end of the next decade".
However he was unable to provide the same degree of assurance
for the carriers, stating that "The carrier programme: we
are still looking at the fine detail of that"
and that "At the moment I cannot say whether there is a gap
or not; it is still part of work we are undertaking".
He explained that:
It is the first time we have looked at all the lines
of development for both the current carrier programme and the
future carrier programme, and within that there is a complicated
programme of transition between different aircraft, different
ships, and until we have completed that work I would not like
to say that I can guarantee there would be no gap.
The Minister wrote to us later in the day after Admiral
Lambert had given this evidence and stated that:
At this morning's session of the Committee, Admiral
Lambert surprised the Committeeand indeed myselfby
suggesting that there might be a gap in our Carrier Strike capability
before the entry into service of HMS Queen Elizabeth.
I am now formally writing to you to let you know
that Admiral Lambert has discovered that there was an error in
the paper that he saw yesterday and which prompted his remark,
which was made in good faith and conscientiously in order to ensure
that he concealed nothing from the Committee.
In fact studies have revealed that there could be
an insufficient number of all-weather pilots training to fly the
JSF at the moment of transition, but having identified this risk
we shall be taking steps to mitigate it.
34. The delay to the Future
Carrier schedule has achieved short term savings but bigger long
term cost increases. The £674 million cost of delay, which
itself omits substantial elements of the true amount, represents
over ten per cent of the current estimated total cost of £5.2
billion for the carriers. Such cost increases in order to reschedule
the equipment programme are unsustainable in the context of a
tightening budget situation and illustrate precisely the reasons
why the equipment programme has become out of balance with the
35. The original announcement
indicated that the carrier schedule had been delayed in order
to bring it into line with the schedule for the Joint Strike Fighters.
The Minister for Defence Equipment and Support has now confirmed
that the decision was also driven by a need to make short term
savings in the equipment programme. We also note that there still
appear to be outstanding issues concerning technology transfer
for the JSF, which are of key importance to the success of the
programme. The MoD should provide us with details of its carrier
transition programme when it is complete, highlighting any areas
where there is a risk of a capability gap.
MILITARY AFLOAT REACH AND SUSTAINABILITY
36. The MARS system is intended to provide afloat
logistic support to UK and allied maritime task groups at sea
and their amphibious components operating ashore. The initial
focus was on the double-hulled Fleet Tankers which were urgently
required to comply with International Maritime Organisation environmental
standards. However, this was one of the programmes which was delayed
as a result of the short examination of the equipment programme.
The Minister for Defence Equipment and Support advised us in October
2009 that he had decided to cancel the previous competition in
March 2009, and "to look for a less highly specified solution".
The MoD's written submission explained that a new competition
had recently been approved to deliver the fleet tankers (now known
as MARS Tankers) and that the closing date for expressions of
interest from industry was 4 December 2009. The Minister for Defence
Equipment and Support told us that the approach being taken was
to ask industry what it could offer and that he was therefore
unable, in advance of commercial discussions, to advise us what
the in-service date would be.
37. The International Maritime Organisation and
EU legislation ban the operation of single-hulled tankers from
2010 onwards. Although naval auxiliary ships operated and manned
by the Royal Fleet Auxiliary are exempt, restrictions imposed
for example by individual nations or ports could restrict the
movements of single hulled tankers. The MoD explained that it
was working closely with Lloyd's Register and the Maritime Coastguard
Agency "to ensure that operation of our single hulled tankers
is not impaired whilst working towards achieving full compliance
as soon as is practicable". It also stated that "The
risk of continuing to operate single hulled tankers is mitigated
by careful programming, operating outside sensitive geographical
areas and additional training for the crews."
In oral evidence sessions, we sought further clarification of
these risks and the mitigating actions planned by the MoD. CDM
told us that "There are some geographic restrictions and
some nations do not allow single hulled tankers into their waters,
but it is not restricting naval operations."
He added that "What we need to be careful of is what do we
do if something does go wrong.
What happens if a single
hulled tanker from some other nation gets holed and internationally
there is a block on?
a fall-back plan
we do have two Wave Class double hulled tankers, so they can operate,
they can replenish at sea, and we would need to hire in commercially
some double hulled tankers."
The Minister for Defence Equipment and Support confirmed this
38. Although the MARS programme
is in danger of overtaking FRES as the longest running programme
failing to deliver any equipment, we consider that the MoD is
right to take advantage of the current availability on the market
of double hulled tankers. The new procurement competition is seeking
a less highly specified tanker. We look to the MoD for an assurance
that it has assessed any possible loss of capability arising from
this reduced specification and has made any necessary alternative
provision. The MoD should provide us with a clear programme for
the MARS fleet tankers against which we can monitor progress.
39. The first Type 45 Destroyer, HMS Daring,
was accepted into service during 2009. The NAO has commented that:
The Type 45 Destroyer will provide a much greater
capability compared to the Type 42 it is planned to replace, but
has experienced considerable delays of over two years and cost
increases of £1.5 billion because of over-optimism about
what could be achieved, inappropriate commercial arrangements
and poor project management in the early stages.
When the Type 45 project was approved, the MoD planned
to buy twelve ships. The MoD explained the rationale for this:
The requirement for 12 Type 45 Destroyers was first
set out in the 1998 Strategic Defence Review. The SDR confirmed
the need to maintain plans to modernise the destroyer and frigate
force, but reduced its size from 35 to 32. The need to meet a
broad range of operational demands required a balanced fleet of
Destroyers and Frigates, and it was judged that 12 Destroyers
would be sufficient to meet this requirement with acceptable military
risk against the planning assumptions and policy baseline at that
However, the requirement was reduced to eight ships
in 2004, and in January 2008, during our Defence Equipment
2008 inquiry, the MoD told us that six Type 45s had been ordered
and that "anything beyond that is subject to the review process
now going on."
Guy Lester, Director Capability Resources and Scrutiny, explained
the MoD's reasoning for the reduction from 12 to six ships:
The successive reductions we have had from 12 to
eight and then eight to six reflected partly priorities in the
programme and partly an understanding of the capabilities of the
ship, especially when we fit them with the Co-operative Engagement
Capability, the improved networking compared with what was originally
envisaged, but the judgement is that with a fleet of six we can
protect a medium-scale operation, which is two task groups, and
that is what we need to do.
The Gray report suggested that the reduction in numbers
was at least partly because of the soaring costs of each ship:
HMS Daring and her sisters will cost £1 billion
each, a price so high the UK can only afford 6 ships. This level
of expenditure is well beyond any other current navy in the world,
barring the US and France. As a result, the export potential is,
to say the least, limited. The continued delivery of these ships
at this cost may seem bizarre, but it is entirely consistent with
each of the single Services' rational desires to retain as much
of the available funding as possible.
40. The Department's policy requirement to have
five ships available for tasking remains unchanged. The NAO suggested
that "it will be challenging to meet this requirement with
the reduction in the number of destroyers being procured, although
the Department judges that the benefits of new technology, improved
efficiency, and optimising the way it supports the destroyers
to maximise time 'at sea' will mean it will be able to deliver
the necessary capabilities with fewer ships".
In response to a question about the implications of one ship being
put out of action, Dr Andrew Tyler answered that:
If we are managing to generate five from six, then
at any point in time we have got one spare. Clearly if we lost
one, then that would leave us only just enough to protect two
task groups on that basis but frankly that goes for all of our
defence capability. We have to size it to a particular assumption
set and if you stress that assumption far enough then we end up
with not enough equipment.
He added that he did not believe that this represented
"the farthest end of the risk" and that "we have
taken a carefully calculated risk and believe that we can live
with that perfectly adequately".
41. The MoD told us that the first of class,
HMS Daring, will enter service with the Principal Anti-Air
Missile System (PAAMS) Sea Viper performance having been tested
but before the missile has been fired from a destroyer. The Department
plans to fit a number of equipments incrementally on ships after
they have come into service, meaning that the full capability
of the ship will not be available until the middle of the decade.
Dr Tyler explained that there had been some recent set-backs in
HMS Daring has got PAAMS capability today. The process
of generating what we would call full operating capability, trialled,
verified and tested, is going to take
a couple of years
longer to generate. You might have read reports recently about
our final trials firing which was not successful. It is too early
for us to come up with the diagnosis for that, but that has been
a set back in terms of the generation of the full capability and
we are working extremely hard with the other two partner nations
in the company to resolve what the problems were with that firing.
42. We expect the MoD in its
response to this Report to tell us exactly when HMS Daring will
have full PAAMS capability, following all appropriate tests and
trials, and to set out the extent to which the lack of this full
capability is a liability in terms of the defensive capability
of the vessel.
43. We are not convinced by
the MoD's explanation that the reduction in the required number
of Type 45s from twelve to eight and then eight to six was due
to a better understanding of the capabilities of the ship. Any
one ship can only be in one place at a time. Whilst new technology
may well have provided some better than expected capabilities,
the spiralling costs of the ship and the pressure on the equipment
programme budget suggest that the reduction in numbers was in
fact primarily down to affordability. The misleading explanations
provided by the MoD in this case are another example of the unhelpful
nature of MoD responses to our questions. We expect that our successor
Committee will in the next Parliament continue to monitor the
Type 45 programme until the associated air defence missile system
is successfully delivered.
44. Helicopters are key assets for all of the
Armed Forces. In our Helicopter Capability Report, published
in July 2009, we noted the vital contribution made by helicopters
to operational capability and the fact that it was "essential
that the fleet should be 'fit for purpose', both in terms of quality
We concluded that:
The MoD should seize the opportunity to recognise
the importance of helicopters to current and contingent operations,
and work towards strengthening all aspects of capability: the
number of helicopters in the fleet, the support structure that
underpins their operation, manning, both in the air and on the
ground, and finally, the training for the full spectrum of capabilities
described by the review itself.
We had a number of concerns about the information
provided in the Government response to our Helicopter Capability
Report, and followed
these up in writing with the MoD.
We discussed a number of these issues with CDM in the oral evidence
session on 1 December 2009, and the MoD provided a written response
to some additional questions which were mainly about the Puma
Life Extension Programme.
45. On 15 December 2009, the Secretary of State
announced the Future Rotary Wing Strategy, the aim of which was
to increase levels of helicopter capability, with priority given
to support of operations.
Key aspects of this strategy were the procurement of an additional
22 Chinooks; confirmation of the Puma Life Extension Programme;
and a reduction in the number of fleet types through cancellation
of the Future Medium Helicopter programme and removal of the Sea
King fleet by 2016. Vice Admiral Lambert described the objectives
of reducing the number of types of helicopters:
The strategy that was announced earlier this morning
drives out a class of helicopter, it reduces the number of types
of helicopters and it brings us into an era where we can see four
main helicopter types going forward with the Chinooks doing the
heavy lift, two types of Merlin, one which will be the anti-submarine
helicopter and the Mk3 doing the amphibious lift, the Lynx helicopters
with the Wildcat and the attack helicopters. As an addition we
are moving forward with the Puma to fill a particular niche capability
but it reduces helicopter types and we are trying to drive out
fleets within fleets.
46. As a result of the short examination of the
equipment programme in 2008, the number of Lynx Wildcat helicopters
to be procured was reduced from 80 to 62 and the upgrade of the
Merlin Mk 1 helicopters to Mk 2 standard was restricted to 30
out of the fleet of 38. The NAO noted that the MoD expected the
reduction in Lynx Wildcat numbers to deliver an overall saving
of £194 million in equipment costs over the next ten years,
plus an additional reduction in the cost of capital and associated
savings from the decrease in the required number of crews and
in support costs. It commented that "Although the decision
saved 12 per cent of the Lynx Wildcat costs, it represented a
23 per cent reduction in helicopter numbers" and that "the
planned number of Lynx Wildcat flying hours has also been reduced
by a third". It has been MoD policy for many years that submissions
for budgetary approval should be supported by both military judgement
and operational analysis. However, the NAO commented that in this
case "The Department did not undertake formal operational
analysis on the impact of the reduction; rather it based its assessment
on military judgement that the reduced numbers would be sufficient
to meet military tasks."
In oral evidence, the Minister for Defence Equipment and Support
confirmed that the MoD remained committed to buying 62 Lynx Wildcat,
stating that "There is no change in that at all. The Wildcat
is on target, on schedule and doing well."
47. With regard to the reduced scope of the upgrade
of the Merlin Mk 1 helicopters, the NAO commented that:
The Equipment Examination resulted in the Department
not proceeding with the plan to upgrade the entire fleet of 38
Merlin Mk 1 helicopters. Instead, only 30 will be upgraded. This
reduction will avoid £64.7 million of costs.
As a result, the Merlin force will be unable to provide
simultaneous anti-submarine protection to more than one naval
task force, such as an aircraft carrier or amphibious group, unless
supplemented by Merlin helicopters used for training.
The Minister for Defence Equipment and Support said
that this assessment by the NAO "sounds correct", adding
that "If we had an anti-submarine threat against two task
groups simultaneously I think we would pull out all the stops
to get all the helicopters we could out there".
CDM did not believe that there was a risk of creating a fleet
within a fleet in order to save up-front costs in the Merlin fleet,
We have 38 Merlin Mk1s of which we are going to convert
30. We will not then use the other eight for anti-submarine warfare.
We have 28 Merlin Mk3s currently flown by the RAF for land use.
We will need to modify those so they can operate off amphibious
shipping. We will probably need to convert the tail rotors so
they fold, certainly the main rotors will need to fold, so we
will in effect have one fleet of 58 Merlins, 30 of which will
be optimised for anti-submarine warfare and 28 of which will be
optimised for amphibious lift. Actually, the helicopters are the
In its Support to High Intensity Operations Report,
the Public Accounts Committee highlighted the issue of shortages
of spare parts for Merlin and Apache helicopters.
It stated that "The initial procurements of spares are still
being delivered from industry and as a consequence there are some
key components in short supply" and that spares shortages
had led to short-term cannibalisation of helicopters both in theatre
and in the UK.
48. The Puma Life Extension Programme is intended
to provide battlefield lift capability for operations alongside
Chinook until at least 2022.
In our Helicopter Capability Report we discussed concerns
about this programme, in particular the crashworthiness of the
aircraft, and concluded that, given the age and the poor survivability
of the Puma, extending its life was not the best option, either
operationally or in terms of the use of public money.
We discussed these issues further in written correspondence with
the MoD. In oral
evidence, Dr Tyler told us that the programme was proceeding very
well and that
it was of low technical risk.
CDM said that there was nothing wrong with the Puma aircraft
and that the Life Extension Programme was a way of getting helicopters
into operation more quickly than buying new ones.
49. The MoD did not send us
a copy of its Future Rotary Wing Strategy Statement until after
the start of our oral evidence session with the Minister for Defence
Equipment and Support, despite having previously briefed the press
and circulated the announcement in public. It is unacceptable
for a Departmental Select Committee to be the last to receive
a Department's announcement.
50. The Merlin upgrade is a
complex programme involving changes of use and transfer of aircraft
between Services. The success of the programme is dependent on
the satisfactory completion and coordination of all of the Defence
Lines of Development, not just the technical upgrade of the aircraft.
The failure of any part of the programme impacts the capability
delivery, as has been shown in the case of shortages of spare
parts for Merlins currently in theatre.
51. We remain unconvinced of
the financial or operational merits of the Puma Life Extension
Programme. We believe that the MoD has underestimated the technical
and operational challenges of the Puma programme, and that there
is insufficient evidence to support the MoD's assurances of the
crashworthiness and the likely delivery dates of the updated aircraft.
We ask the MoD to provide further evidence to demonstrate that
a full risk assessment has been carried out on the survivability
characteristic of the Life Extended Pumas.
52. The cancellation of the
Future Medium Helicopter programme will release a significant
number of MoD staff and we ask the MoD to provide details of its
plans for re-deploying this workforce. In the context of the cancellation
of the Future Medium Helicopter and the MoD's decision to purchase
Chinooks from the USA, we ask the MoD to explain what steps it
plans to take to maintain a UK capability to support and upgrade
helicopters, in accordance with the Defence Industrial Strategy.
53. During our Helicopter Capability
inquiry we expressed concern that commanders in the field were
hampered by a lack of helicopters but the MoD would not accept
that its helicopter fleet size was too small. Whilst we now welcome
the greater clarity provided on the future helicopter fleet strategy
and the recent decision to procure an additional 22 Chinooks,
we note that this additional operational capability will be funded
from the MoD's core budget and so has necessitated cuts from other
parts of the equipment programme. Adding numbers to the fleet
is only one aspect of delivering additional capability which also
requires adequate manpower, training and support. We understand
that having more Chinooks in theatre will require more support
helicopters in the fleet and we have not yet seen how these will
be provided. It will also stretch an already tight system where
there are insufficient pilots and ground crew and a budget for
helicopter hours, and we seek assurance from the MoD that all
of the Defence Lines of Development for the Chinooks have been
properly planned. We believe that the estimated delivery date
of 2012 is optimistic and ask the MoD to provide details of the
planned transition arrangements.
8 HC (2008-09) 107, para 10 Back
ibid., para 150 Back
National Audit Office, Performance of the Ministry of Defence
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October 2009, www.nao.org.uk Back
NAO, The Major Projects Report 2009, p 4 Back
ibid., p 4 Back
NAO, The Major Projects Report 2009, p 7 Back
HC (2008-09) 107, paras 27-37 Back
ibid., para 37 Back
The Gray report, p 22 Back
HC Deb, 15 December 2009, col 801 Back
HC Deb, 19 June 2008, col 1122 Back
Ministry of Defence, Annual Report and Accounts 2007-08,
HC 850-I, p 135 Back
HC (2008-09) 107, Q 298 Back
Defence Committee, Seventh Report of Session 2006-07, The Army's
requirement for armoured vehicles: the FRES programme, HC
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HC (2008-09) 107, para 84 Back
ibid., para 95 Back
Defence Committee, First Special Report of Session 2008-09, Defence
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Ministry of Defence, Minister for Defence Equipment and Support,
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HC (2008-09) 107, para 20 Back
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NAO, The Major Projects Report 2009, para 1.8 Back
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HC Deb, 15 December 2009, col 802 Back
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Ministry of Defence, Annual Report and Accounts 2008-09,
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NAO, The Major Projects Report 2009, para 2.5 Back
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NAO, Performance of the Ministry of Defence 2008-09, p
Ev 114 Back
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ibid., para 51 Back
Defence Committee, First Special Report of Session 2009-10, Helicopter
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Ev 115 Back
HC Deb, 15 December 2009, col 99WS Back
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NAO, The Major Projects Report 2009, p 27 Back
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Q 427 Back
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