CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 99-iHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREDEFENCE COMMITTEE
DEFENCE EQUIPMENT 2010
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This is a
corrected transcript of evidence taken in public and reported to the House.
The transcript has been placed on the internet on the authority of the
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The transcript is an approved formal record of these proceedings. It will be printed in due course. |
Oral Evidence
Taken before the Defence Committee
on
Members present
Mr James Arbuthnot, in the Chair
Mr David Crausby
Linda Gilroy
Mr David Hamilton
Mr Bernard Jenkin
Mr Brian Jenkins
Mrs Madeleine Moon
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Witnesses: General Sir Kevin O'Donoghue, Chief of Defence Materiel, Dr Andrew Tyler, Chief Operating Officer (DE&S) and Mr Guy Lester, Director Equipment Resources, Ministry of Defence, gave evidence.
Q1 Chairman: Good morning and welcome to this the first evidence session on our Defence Equipment Inquiry. Chief of Defence Materiel, you have been before us before but would you like to introduce your team, please?
General Sir Kevin O'Donoghue: Thank you very much: Dr
Q2 Chairman: Thank you very much and welcome. It has been a very eventful year in defence equipment issues. One of the things that has happened has been the production of the Bernard Gray review of acquisition, produced at the request of the previous secretary of state, with the assistance of a team from people within the Ministry of Defence. I think it would be right to divide that review into the analysis that it does of the problems with defence procurement which have gone on for many years now, and the solutions it proposes to those problems. Dealing first with the analysis of the problems that it proposes - and I would be grateful if you could keep this to a few sentences and a few concepts - do you, by and large, accept the analysis of the problems?
General Sir Kevin O'Donoghue: I accept that he identified two areas where we need to do better. One is that the programme is overheated; I accept that. I do not agree with his figures and - as Quentin Davies said in Top Day after the Report was produced - there is not a lot of evidence for the actual figures. I accept the equipment programme is overheated; and I accept that we need to do better, although I am very happy to come back and talk about what we are doing much better, project initiation and how we get projects into the programme. As far as his analysis is concerned, that is where I sit.
Q3 Chairman: The analysis was quite detailed as to how some of the problems leading to this overheating arise. Would you not accept the details of those problems, the analysis of those problems?
General Sir Kevin O'Donoghue: I do not accept the maths, no. There is very little evidence in the Report for the maths. I turn to Dr Tyler who could give you some examples of where perhaps that evidence is thin.
Q4 Chairman: Through Life Capability Management he describes as "fearsomely complex". Would you agree with that?
General Sir Kevin O'Donoghue: No, I do not. It is new. You will recall, and we have discussed this in this Committee before, some time ago we had Through Life Equipment Management which Peter Spencer and I were struggling with. Putting DE&S together as one organisation has made Through Life Equipment Management much easier to deliver. This is Through Life Capability Management which is of course pan-department, not just DE&S. It is not easy; it needs working at. If it was easy we would have done it many years ago, but the prize is well worth seizing for Through Life Capability Management and I do not agree that it is as complex as Bernard Gray suggests.
Q5 Chairman: The suggestion exists in his Report on page 125 that since the merger of the DLO and Abbey Wood there has been a serious deterioration in time slippage and in cost slippage. Would you accept that?
General Sir Kevin O'Donoghue: No, I do not. Cost slippage, as I think you will see - I believe the NAO will report shortly in the MPR - is more to do with conscious programme decisions, or collaboration with our partners, or foreign exchange, than problems with the project teams. There is time slippage, I accept that: A400M, for example, is the biggest time slippage. No, I do not accept that it has got worse; in fact we have turned the corner. Since the Tyler/O'Donoghue team kicked off with DE&S 18 months ago I think we have turned the corner and we are beginning to see really quite a lot of progress. Astute has sailed and there are MRA4s heading in December 10 to the RAF. You perhaps do not know that the first Chinook Mk 3 was taken over by the RAF this morning. I think we have got a good tale to tell. I do not accept what is in Bernard Gray's report, although I do accept the broad analysis.
Q6 Chairman: I see. Staff reductions: are you going to be making significantly greater staff reductions than have already been achieved?
General Sir Kevin O'Donoghue: I have always said, and I think I said to this Committee last year, I believe that DE&S can come down to a figure of 20,000 - we are at about 22,000 now; but there is a proviso, a caveat, that we must spend money on re-skilling and up-skilling if we are to get down to those sorts of numbers. I believe that is the right number of people within DE&S, but they need to be in the right place and they need to have the right competences and, therefore, we are going to have to spend money on re-skilling and up-skilling.
Q7 Chairman: That is a part of the Bernard Gray review that you would accept, that there is a shortage of the relevant skills?
General Sir Kevin O'Donoghue: I do and I could explain the areas where I do think there is a shortage of relevant skills, if you wished?
Q8 Chairman: Yes, please.
General Sir Kevin O'Donoghue: I think there are four main areas. One is in cost estimating, which I do accept we are not that good at it and I divide that into three areas, initial cost estimation, parametric costing. If you look at some of our equipment projects which have out-turned with cost growth, when the parametric costing has been done after the event they have cost about what they should have done. The second area is cost engineering, getting involved with the contract lawyers and the contract officers from big companies. The third area, under cost assurance, is cost validation after the contract is signed. I am short of people with those cost estimation skills and we are currently recruiting people to increase the size of our cost estimation service. I have got about 300 of them; I need about 420 of them.
Dr Tyler: We should also add that there are some areas of engineering discipline -----
General Sir Kevin O'Donoghue: There are other areas but just on cost assurance.
Q9 Chairman: Do you think you have the right financial tools to do that cost assuring consistently used across the Department?
General Sir Kevin O'Donoghue: No. No, they are not. I would agree again that the cost estimation tools we need to push right across the Department.
Q10 Chairman: That is another area in which you accept the detail of the Bernard Gray report?
General Sir Kevin O'Donoghue: Indeed. What I said I did not accept was his maths and the something between £1-21/2 billion adrift, which is what I think he says.
Q11 Chairman: Okay, so it is just the maths that you do not accept?
General Sir Kevin O'Donoghue: I do not agree with his maths, no.
Q12 Chairman: As for the analysis of the problems, leaving aside the maths, do you accept the general thrust of the analysis of the problems?
General Sir Kevin O'Donoghue: As I have said, I accept that we have an overheated programme; and I accept we are not good at project initiation. Part of that is cost estimation; part of it is financial accounting, which is the second area; part of it qualified engineers, both project engineers and programme engineers; and a part of it is technical assurance, which we are not good at. What we are very good at doing is assuring a process. What we are not good at doing - and there are some quite good examples - is being absolutely clear in our mind before Main Gate is agreed that the project is doable.
Q13 Chairman: Do you accept that the programme is overheated because of the matters identified by Bernard Gray?
General Sir Kevin O'Donoghue: It is partly overheated because of cost estimation - I would accept that. It is partly overheated because our aspirations are always much greater than the money we have available.
Q14 Chairman: That is explained by Bernard Gray?
General Sir Kevin O'Donoghue: Yes.
Q15 Mr
Jenkin: I am glad to hear you are
tackling the people issue. It is said
that there are more people in the helicopters
General Sir Kevin O'Donoghue: No I do not agree. I am sorry!
Q16 Mr Jenkin: It is one of those apocryphal things that floats around - I am glad you have corrected it! Numbers of people who are regularly moving through your organisation, moving in and moving out, are no match for industry people who are permanently fixed in their companies and see people in IPTs come and go. Are you addressing that problem?
General Sir Kevin O'Donoghue: No, I do not actually agree with you. I think that, as far as project management is concerned, DE&S is the best in government, and I am not too sure we are not the best across industry as well.
Q17 Mr
Jenkin: "Best in government", I was
going to say that might not be a very good comparative! Surely somebody who is fixed in Finmeccanica
Westland for 20 years is going to know the ropes better than people who are two
or three years in the helicopters
General Sir Kevin O'Donoghue: The reason the military are there is to bring current operational experience, and it is less important that they stay there forever. Civil servants are the continuity, they actually produce that deep continuity and the understanding of the business. There are some outstandingly good military project team leaders and they tend to stay two or three years. This is not a constant flowing structure.
Q18 Mr Jenkin: Is the fact that people leave your organisation and then go and work for industry a cause for concern? Does that create a conflict of interest?
General Sir Kevin O'Donoghue: It depends what level they are at. It is a cause for concern if they are really good people; that would give me cause for concern.
Q19 Mr Jenkin: Are your people not looking across the table thinking, "I might want a job with this company in five years' time, I'd better be nice to them"?
General Sir Kevin O'Donoghue: We have got the checks and balances in to make sure that does not happen.
Dr Tyler: We do not have a large flow-out of good staff, or staff period, into industry. Actually when we do very often it is to our advantage because, as you know very well, industry is an integral part of our enterprise - we rely on them utterly for delivery - and in many cases when they do go into industry they take a lot of knowledge about the way that we operate as a customer, and their close experience of our user. They take that into industry and that can be very useful to us; as can the opposite, where we have people from industry coming into the MoD. But there is no great flux of this going on day in/day out. There is a lot more stability than I think your question is intimating within all of the areas in DE&S. If you take the helicopters operating centre just as a "for example", yes, you would find some turnover of military staff, but as CDM has said that is bringing frontline operational experience into the operating centre which needs to be kept very, very current. If you looked in the Civil Service population, which would be something like 75% of the helicopters operating centre, you will find specialists there who have spent either all or very large amounts of their career in the helicopters area. It is important that we also complement that with a certain flux between the different operating centres. One of the reasons for that is, quite often we are pioneering a business model, a commercial model in one part of the business when, if it is proved successful, we then want to pervade that over into other areas of the business; and the best way to do that is to have some level of staff movement to bring those ideas and apply them in different areas of the business.
Mr Jenkin: I am sorry, Chairman, I should put in record I have an interest on the Register, an unremunerated interest, that Finmeccanica supported a charitable event I was involved with. I apologise for not mentioning that before, but I do not think they will thank me for asking those questions.
Q20 Chairman: How many people are involved in buying helicopters?
Dr Tyler: I think that operating centre is about 800 or 900 staff, from memory, but we can confirm that number to you precisely.
Q21 Chairman: That would be helpful. Thank you. When you are downsizing from 22,000 to 20,000 how can you be sure that you will lose the right people?
General Sir Kevin O'Donoghue: I would like to call it "rightsizing" rather than "downsizing".
Q22 Chairman: Down is not necessarily wrong?
General Sir Kevin O'Donoghue: No. To get to the right size, and we are going through this exercise at the moment, I am absolutely clear that professionalism and safety must be paramount: professionalism in the way that we work, and safety right across all the disciplines. We are moving people around out of the corporate centre into the operating centres. There is a process in place. You cannot always guarantee that you do not lose some of the people you would rather not lose. People are free agents, they can move if they wish to; but I think our process is a reasonable one.
Q23 Chairman: Are you not likely to lose the most enterprising?
General Sir Kevin O'Donoghue: Possibly. I would just perhaps put on record that I think we have in our Civil Service a really loyal staff. If you look at some of the men and women in my organisation who will appear and say, "We've worked until ten or 11 at night. We've worked seven days a week for the last four weeks and look what we've delivered in the way of equipment or support to the frontline. We're proud of it". I think while we can engender that sort of attitude, that behaviour, we will keep the better people. There is this great focus in DE&S - and great focus right across the MoD - of support to the frontline, and that is what keeps people in, they know they are doing a good job.
Q24 Chairman: You are talking about moving people around, the analysis in the Bernard Gray review about the rotation of staff in positions of responsibility suggests that that rotation has become greater and more frequent, and that it has an adverse effect on project performance. What would you say about that?
General Sir Kevin O'Donoghue: I do not think it has become any greater at all. That is perhaps another fact I do not necessarily agree with him over. The military do move but as I have said, and as Dr Tyler has said, we need the military to bring back recent operational experience. I need young men and women from the three Services to be in my organisation and say, "I wouldn't buy that if I were you. We don't fight like that any more". That is what I need them for, so they need current operational experience. The continuity, as I have said, is provided by my team leaders and deputy team leaders who we tend now to post in to a milestone. It might be to achieve Initial Gate; it might be to achieve Main Gate, depending upon the timescales.
Q25 Chairman: Okay, so you do not agree. What is it exactly that you do not agree with him on?
General Sir Kevin O'Donoghue: I do not think we move people too fast.
Q26 Chairman: He says that in 2003 the average number of people who were in position for between one and two years was 31%. Is that something you would disagree with him on?
General Sir Kevin O'Donoghue: I do not recognise the figure. Which year was that?
Q27 Chairman: That was in 2003. In 2009 he says it was 23%. Would you disagree with that?
General Sir Kevin O'Donoghue: I do not recognise those figures, I am afraid.
Q28 Chairman: These figures were produced after an exhaustive review with assistance from your Department. Did he invent them?
General Sir Kevin O'Donoghue: I do not know. I do not know the answer to that.
Mr Jenkin: Could you write to us?
Q29 Chairman: Why do you not know?
General Sir Kevin O'Donoghue: Because I have not done the maths. I have not considered it a problem. I do not react to every review that is done unless I can perceive a problem. I do not perceive a problem in the movement of staff and so I have not done the percentages.
Q30 Chairman: So you disagree with his maths, not because you think it is wrong but because you have not done the maths yourself?
General Sir Kevin O'Donoghue: No, I disagree with his financial maths, as I made clear. I disagree with his between one and a bit and two and a bit billion adrift; that is what I disagree with. There is no evidence in the Report to substantiate that that I have found.
Q31 Chairman: When you say "there is no evidence in the Report", have you read the supporting paragraphs of those conclusions?
General Sir Kevin O'Donoghue: I have read the Report.
Q32 Chairman: Have you cross-examined the people who were involved in the production of that report to say, "Why did you get these figures wrong?"
General Sir Kevin O'Donoghue: If I may, let me just pass over to -----
Q33 Chairman: No, not at the moment. I would like to ask you why you disagree with his maths, without apparently having done the maths yourself?
General Sir Kevin O'Donoghue: Because there is no evidence to show what he means by "£1 billion or £2.5 billion adrift" - no evidence at all.
Q34 Chairman: Have you asked him about this?
General Sir Kevin O'Donoghue: No.
Q35 Chairman: He is working in your Department still, is he not?
General Sir Kevin O'Donoghue: He is part of the DARP process, yes.
Q36 Chairman: Have you had the opportunity to ask him about it?
General Sir Kevin O'Donoghue: No, not that particular figure because I do not believe that it is detrimental, the movement. Whatever the percentage of movement is, I do not believe it is detrimental to the way my organisation works.
Q37 Chairman: Is that because you do not want to believe it?
General Sir Kevin O'Donoghue: No, I do not believe it is detrimental to the way my Department works.
Q38 Chairman: But you have not asked him about it?
General Sir Kevin O'Donoghue: No, not that specific question. We have had a lot of discussion about the areas I was talking about earlier.
Q39 Chairman: Have you told him you disagree with it?
General Sir Kevin O'Donoghue: No.
Q40 Chairman: Why not?
General Sir Kevin O'Donoghue: Because it is a very thick report. I could go through and agree with that phrase and disagree with that phrase.
Q41 Chairman: But it is the key thing you are telling me you disagree with?
General Sir Kevin O'Donoghue: No, it is not. What I disagree with him significantly about is the mathematical figures on finances.
Q42 Chairman: But you have not told him you disagree with him then?
General Sir Kevin O'Donoghue: Oh, yes. I have told him I disagree with him. Yes, of course I have. I have not told him I specifically disagree with the figure you just produced on percentages, which I think was 21%.
Q43 Chairman: No, I would not have expected you to have told him that. You did not actually disagree with that; you said you just did not recognise it?
General Sir Kevin O'Donoghue: Precisely.
Q44 Chairman: What about this £35 billion adrift, 80%, those figures? Have you told him you disagree with that?
General Sir Kevin O'Donoghue: I personally have been part of a meeting where those figures have been discussed, yes.
Q45 Mr Jenkins: I tend to have a lot of sympathy with regard to the Gray report, Sir Kevin. Having sat on the PAC for a number of years I recognise that the National Audit Office are to me the more regular producers of reports with regard to defence. I can go back eight or nine years and see the sort of slippage we make, the time slippage and the financial slippage, and I understand the reasons why. Is it possible to ask the National Audit Office to come up with a snapshot of 20, 15, ten, five years ago and today and see the overrun as a percentage of the total cost and the time slippage as a percentage of the project times etc., so we can actually nail down and prove once and for all that there is no great dip or rise, but it is a constant problem we have had to endure for a number of years because of the very nature of this beast? Could we do that and get it as a set of tables?
General Sir Kevin O'Donoghue: I am sure we could.
Q46 Mr Jenkins: Would you do it?
General Sir Kevin O'Donoghue: I am not sure I can task the NAO. I am not sure that is within my gift. I think the Public Accounts Committee would be the Committee to task them.
Q47 Mr Jenkins: The National Audit Office does regulate and produce the accounts for the MoD, and the Permanent Secretary signs them off?
General Sir Kevin O'Donoghue: Yes.
Q48 Mr Jenkins: So is it within his gift?
General Sir Kevin O'Donoghue: I do not know. I am sorry, I am not sure that it is within our gift to task the auditors.
Mr Lester: I think we could ask them the question. We do not formally task them though. They work for the
Q49 Mr Jenkins: Would it be of any interest, do you think, to a public debate on the Gray report if we got those figures?
General Sir Kevin O'Donoghue: Yes. I agree your premise, and we have had this debate last year and the year before that the equipment programme has been overheated for many years. I agree with that.
Q50 Mr
Jenkins: Like the figure about the
General Sir Kevin O'Donoghue: Okay, you are on!
Q51 Mr Jenkins: Because they are moved regularly and the rationale and the reason why they are moved is because of their career, they get promotion or they move up etc., but those who are a bit cynical say when you actually tackle them and say "Who did this", they say, "I don't know I wasn't in charge of the project then". What are the percentages of the projects you actually finish which start out with the original team leadership?
General Sir Kevin O'Donoghue: I would think very few start and finish. Very few of the big projects, the UORs, yes, but if you have got a project running eight or nine years I suspect that you are right; I suspect very few start and finish with the same team leader. Actually, that is not necessarily a bad thing. Sometimes, get it to Initial Gate, get a fresh pair of eyes; get it to Main Gate, get a fresh pair of eyes; get it through its first in-service phase. I do not think it is necessarily a bad thing; which is why, in answer to the Chairman, I do not believe 21% of turnover is a problem.
Q52 Chairman: It is one thing to say that it may be a good thing to have a high turnover; it is a wholly different thing to say that Bernard Gray's analysis of whether there has been a high turnover is wrong.
General Sir Kevin O'Donoghue: No, I said I did not recognise it.
Q53 Chairman: You said, when I put the figures to you, that you did not recognise those figures because you had not done the maths?
General Sir Kevin O'Donoghue: Indeed.
Q54 Chairman: But you said also beforehand that you did not
think that there had been a higher turnover of
General Sir Kevin O'Donoghue: No. I genuinely do not know. The first figure you quote is 2003, that is in the DPA days, and I have not done those maths.
Q55 Chairman: No. I was just using that as an example as to how his figures might have been correct, but you have not done that maths?
General Sir Kevin O'Donoghue: No, I have not done that maths.
Q56 Chairman: Generally speaking, you have to accept I think, do you not, that there has been a higher turnover of staff in these IPTs, unless you can suggest that there is some refuting maths and refuting analysis?
General Sir Kevin O'Donoghue: Maybe. Bear in mind that 850 people at the moment in Dr Tyler's area are working on UORs. They have moved away from the project teams they were originally on to work on UORs; this is in 2009. I just do not recognise the figure, and I do not believe it is a problem.
Dr Tyler: The issue is surely one of materiality is it not, as to whether this is a trend in numbers which is now giving rise to some downturn in performance; and I do not think that cause and effect link is proven at all. Part of the reason why I think there is some difficulty in producing these numbers is because - as we have settled DE&S down over the last three years, taking it from being fit for purpose in April 2007 to the state we are now - we have been doing quite a lot of restructuring within operating centres, and quite a few of the job titles and the project team boundaries have been changing. Sometimes when these rather core statistics are generated confusion can come in because somebody's job title has changed between one job and another but, in essence, their role and responsibility has remained much the same. That is a confusion we have had quite recently in another piece of work that is being done.
Q57 Mr Jenkins: I agree - that is exactly the point I am trying to get to now with regard to the make-up of the team. If you get a specialist come in, he might go in and out of a team and move along teams because experience is needed in each team. It is not the make-up of the team that I am asking you to defend now, it is: who would you consider to be the leadership in that team? How consistent, how permanent is the leadership of the team? At which stage do you move the leadership of the team? If you feel happy you get to Gate One, or Main Gate, you can actually move the leadership on then because they have done their task, they have completed their route? Having signed off at that stage, they have completed their task. How many leaders have changed before they complete their task? Do we keep records of this sort of nature? Could you do a survey and say in these 20 projects this is okay and that is okay?
General Sir Kevin O'Donoghue: We could certainly do it for at least 20
projects. If you would like me to do it
for these 20 I can certainly do it. The
Q58 Mr Jenkins: Any 20, and say, "These are the ones we have had over this time, the leadership is there but the team might be different underneath".
General Sir Kevin O'Donoghue: Why do I not do it on the MPR list of projects?
Q59 Chairman: Hold on, CDM. Can I just say, the Secretary of State last week told us that your Department was going to produce a response to the Bernard Gray review.
General Sir Kevin O'Donoghue: It is.
Q60 Chairman: Will that response provide an analysis of where you disagree with the figures in the Bernard Gray report?
General Sir Kevin O'Donoghue: I do not know, but I will certainly take that question back. Lord Drayson, of course, is leading on this response.
Q61 Chairman: Yes, we will ask him these questions, or some of these questions.
Dr Tyler: I think what we have been trying to do is we have been trying to concentrate on the positives on which there are a lot in the Bernard Gray report. The Secretary of State set out in the House the eight point plan which we are now rigorously and vigorously pursuing. What we have been doing is - rather than descending into an argument over numbers and statistical treatment of numbers and so on, which I have to say would be very easy to do in this particular case - we have been concentrating on the positives and taking those forward. I think that is a much more constructive territory for the Department to be in than having a war of numbers.
Q62 Mr Jenkin: Chairman, I sense that there is frustration at the way the Bernard Gray report has been presented and greeted; and I suggest if that is your view that you do need to debunk some of the things that Bernard Gray has picked up. In this question of team leader turnover he is comparing the tenure in post of 30 leaders of large projects, and in 2003 four per cent were in post for less than a year, and in 2009 37% were in post for less than a year. Just putting my old venture capital hat on, I would say that that is cause for concern or it requires explanation. I think we require an explanation?
General Sir Kevin O'Donoghue: You are talking about 30 projects here; we are currently running at 900 plus projects.
Q63 Mr Jenkin: Okay. Is this completely unrepresentative? What would be the representative sample? I think it needs an explanation - it needs fleshing out - if you are simply to dismiss it as something of no concern. I am afraid I think we need an explanation.
General Sir Kevin O'Donoghue: I will certainly take that back.
Dr Tyler: We have got something a little under 2,000 projects that we are running at any point in time. If we took the total population and expressed numbers on that basis you would find that the vast majority of the 2,000 projects have the same project team leader from start to finish because a lot of them are quite small.
Q64 Mr Jenkin: What you are implying is that Bernard Gray is completely out of order producing numbers of this nature.
Dr Tyler: What he has done is picked a very small sample of projects, as he has done several times throughout his Report, and then generalised from the specific to the small number of projects.
Mr Jenkin: I think if that is what you feel we do need to know that, but we need your figures to compare with his figures; and I think the public needs that in order to be able to make a proper judgment.
Q65 Chairman: He has picked a small number of large projects?
Dr Tyler: Yes, that is correct.
Q66 Chairman: If you have a small project the chances are it will be quicker?
Dr Tyler: Yes, correct.
Q67 Chairman: The chances are somebody will stay in post for the four months or whatever it might take to get it through?
Dr Tyler: Yes.
Q68 Mr Jenkin: But four per cent and 37% is quite a dramatic change, and when things change I like explanations?
Dr Tyler: We can take this one away and we can go and look into the specifics of it.
General Sir Kevin O'Donoghue: I do not know the answer but I will take it away and have a look at it.
Q69 Mr Jenkin: I am afraid it is more about Bernard Gray! Bernard Gray actually said that the equipment programme is "unaffordable on any likely projection of future budgets", do you agree?
General Sir Kevin O'Donoghue: Yes, I do.
Q70 Mr Jenkin: How unaffordable?
General Sir Kevin O'Donoghue: I do not know. I would need to turn to Guy on my right who is in the programme staff. Before I do, this is the whole point of planning rounds. Our aspirations are always much greater than the budget. Given an unlimited budget I have no doubt we could spend it. The whole point of planning rounds is to make sure that that list of aspirations is put into the proper priority order for the time and for the contingent or current operations and money is spent accordingly. That is what a planning round does. The aspirations traditionally have been higher than the budget.
Q71 Mr Jenkin: It must be measurable even if only vaguely, but the reluctance of anybody in the Government to put a figure on it suggests a shyness about the implications of this number, particularly if its trending upwards rather than downwards. Is it trending upwards?
General Sir Kevin O'Donoghue: I do not know. I do not know; I need help.
Mr Lester: To be fair to CDM, this is more my patch than his. It makes me more reluctant to give figures in some ways! At the moment we are in the middle of the 2010 planning round which means we cannot say as of today how unaffordable we are.
Q72 Mr Jenkin: What was it last year?
Mr Lester: When we went into the equipment examination and then the 2009 planning round ----- Could I just have a slight aside. One of the areas where we have had a long debate with Bernard Gray is because a lot of his assessments of numbers are to do with assumptions and he has made certain assumptions and sometimes we disagree with his assumptions. Even though his data often came from the Ministry of Defence in the first place and we validated that, he has then made assumptions based on that; and one of the issues is how unaffordable the defence programme is, because it depends on what you assume about how big the future defence budget is. As you know, we have got a Spending Review which takes us up to next year, and beyond then it is just speculation how large the defence budget will be. You can inflate it: depending on what percentage you assume a level defence budget will be growing at, that drives how unaffordable the defence programme is. On the basis of our forecasting, at the start of the 2009 planning round and the equipment examination we assessed that we were about £21 billion over-programmed over ten years.
Q73 Mr Jenkin: £21 billion?
Mr Lester: £21 billion over ten years. By the end of that planning round, the beginning of this planning round, we were about £6 billion over-programmed over ten years.
Q74 Mr Jenkin: So it is a very sensitive figure?
Mr Lester: There have been a lot of figures bandied about.
Q75 Mr Jenkin: How can £21 billion suddenly become £6 billion? These parameters have a very big effect on the outcome.
Mr Lester: £21 billion became £6 billion because of the action we took in the 2009 planning round and the equipment examination. It was not changing the parameters, it was just doing what our planning rounds always do, which is balancing the books and prioritising. Every year we look at our programmes and we decide what is the highest priority and what is a lower priority.
Q76 Mr Jenkin: Actually you have answered my next question which is: how much more closely balanced are we now? You say it has come from £21 billion -----
Mr Lester: We are more closely balanced; we will get it more closely balanced still in this planning round. The focus in this planning round is on balancing the next couple of years. In the Defence Review the task there is to look at the more strategic issues which will produce a balanced and affordable programme over the longer term. In that sense we totally accept the analysis in Bernard Gray's report, which is that all sorts of things - whether it is good procurement decisions; whether it is making Through Life Capability Management work properly - are dependent on having a more balanced programme than we have at the moment.
Q77 Mr Jenkin: I think this is very positive. I think we are getting numbers we have never had before, Chairman. I can cut my questioning short. Before we leave that subject, can we have the methodology that you use to come up with £21 billion and then £6 billion? Would it not be helpful if all this was in the public domain? What are the assumptions that you have used, and are they the same assumptions in both cases?
Mr Lester: Yes. The only assumption which is relevant is that we budget for our programmes based on 50% estimates of the cost of the programme generally, give or take a few exceptions.
Q78 Mr Jenkin: I am sorry, I do not know what that means. What do you mean by that?
Mr Lester: This is where I am getting outside my comfort zone! There are different ways of costing the equipment programme, depending on how much risk you assume in the costing. The idea of a 50% costing is a programme has a 50% probability of exceeding that costing or coming in at less than that costing. If you take the portfolio of programmes as a whole, if you cost everything at that 50% level then statistically, if you add them all up, that should be how the programmes come out. In practice that does not seem to work brilliantly, which is one of the reasons we have cost pressures in the programme. The theoretical approach, which is sound, does not work so well in practice because some of the major programmes historically tend to come out above that 50% level, and therefore when you add them all up it unbalances the programme. That is how we cost the programme. We then make assumptions about what a level defence budget in real terms would look like, and there we just use a deflator - for which we use 2.7% a year - and then the figures I quoted are just one line minus the other line.
Q79 Mr Jenkin: That is very useful. Thank you very much. Of course, one of the problems you are always grappling with, which Bernard Gray also scrutinises, is the attempt to quantify the costs of the MoD delaying programmes. He puts that at between £0.9 and £2.1 billion a year. Do you recognise those figures?
Mr Lester: Because it is rather close to my job I have
had discussions with Bernard Gray and his team quite a lot. As
Dr Tyler: This has been the issue that we have had from the start. When you look at that number and you consider that that is £1-2 billion on £6 billion of spend, instantly one's commonsense antennae start to twitch and say, "Can that possibly be a credible number to be 'wasted'", or frictional costs or whatever the euphemism is for it? When you start to unpack it - and the means by which he has arrived at this number is very complex, and we could spend all morning discussing it which I know would not be what you would wish to do - but for example -----
Q80 Mr Jenkin: I would love it!
Dr Tyler: ------ half of that number is what he describes as "unproductive projects costs". Included within that, for example, is overcoming technical issues. Overcoming technical issues is what we do. We are buying technically very complex pieces of equipment, and a lot of DE&S is focussed on solving technical issues. If that is an unproductive project cost, I would like to know how that sort of logic has gone through. He talks about hidden industry costs (the provisions that industry makes within their accounts for losses that they have made on projects that they have not managed to manage adequately, or that they have underbid in the first place), and he calls that an unproductive project cost which is added to this frictional pile. When you start to unwrap it and see the assumptions he has made, as Mr Lester has said, you see that a lot of the assumptions are racy, to say the least. My personal view is that it is a number which has been somewhat exaggerated for the sake of effect, and I think that is unfortunate.
Q81 Chairman: Dr Tyler, can I say why I think this is helpful. I think this is helpful because you are at last discussing the detail of the Bernard Gray report saying, "It is right here and wrong there; that issue is something that can be discussed in public", and we can finally get the truth as to what is going wrong, if anything, within the Ministry of Defence. That is something that we have been trying to do for decades. That is something, surely, that is not unproductive in terms of questioning the figures; it is something we have got to do in order to come to the right answer?
Dr Tyler: I said earlier, I think as a Department we have agreed that the most constructive way to respond to Bernard Gray - which, by the way, qualitatively I think we would agree with the vast majority of Bernard Gray's conclusions; once or twice I have described them as "glimpses of the bleeding obvious"; but there can have been few surprises qualitatively in what he came up with in his Report, and I think we would say the same thing. We have been very much on a constructive course here, looking at the areas that he has recommended for improvement; going through those; having lots of detailed discussions about how we would go about implementing his recommendations. One or two of his recommendations I think we have decided that we will not be taking forward, and there have been public statements to that effect; but a lot of the recommendations that he has put on the table we are looking to take forward; and the Secretary of State was quite clear when he made the announcements in the House about the way in which we would be responding to the Report. Time is precious; we want to get on with this. We could spend a huge amount of time - indeed if you read my copy of the Bernard Gray report there are scribbles all over the margins where I might disagree with the detail, but it does not seem an entirely constructive thing to be sitting there dismantling details in the Report when qualitatively we agree with most of the thrusts of the Report.
Q82 Chairman: May I do that? May I read your copy of the Bernard Gray report?
Dr Tyler: You are welcome to it.
Chairman: Thank you. I would like to.
Q83 Mr Jenkin: On this question of annual costs of delays, I do not want to trespass on a later question about carriers but how does it work? The decision to delay the carriers by two years, is that taken by you, CDM, or is it taken above your pay grade?
General Sir Kevin O'Donoghue: No, it is on recommendations from the Defence Board to Ministers.
Q84 Mr Jenkin: In a way, these decisions - they are inevitably very political - it is the politics that has put the cost up?
General Sir Kevin O'Donoghue: No. By definition, if you delay something you will finish up with ------
Q85 Mr Jenkin: I understand that. The point is, the decision not to delay earlier and to save some of this delay cost is a political decision?
General Sir Kevin O'Donoghue: I think most of what we do is a political decision.
Q86 Mr Jenkin: I am just clarifying that. I think a lot of what Bernard Gray is criticising is not necessarily the performance of your Department, it is the political management.
General Sir Kevin O'Donoghue: We are in a democracy.
Q87 Mr Jenkin: Yes!
Mr Lester: I would not say it is political. In this particular case it was a financial
and prioritisation decision, which is what
Mr Jenkin: We have been making reports about the unaffordability of the equipment programme ever since I came on the Committee since 2006, and the Government sort of resisted that conclusion. The Government is now recognising that conclusion, but that resistance ultimately comes from the top, does it not? That is an unfair question. Can I move on to research and development.
Chairman: Before you move on, Brian Jenkins.
Q88 Mr Jenkins: One of the problems you have got with actually assessing the cost of delay is there are obviously pluses and minuses with any decision taken. In the past we have been in a position where we have had to place orders with companies not because we needed the order but if we did not place the order the company would go out of business and, therefore, we would lose that specialism and lose that sovereign ability to produce that piece of equipment. When we have delayed some of these orders in the past what we have done is impose a burden on the company by saying, "We want to keep you in business, but we don't want to keep you in business too well and want to push it back a year". We have been pushing projects back to the right for decades now in the belief that we must maintain that sovereign ability. Who should pay for it? Should the MoD budget pay for it in the longer term, or should the nation itself pay for it with some sort of special funding?
General Sir Kevin O'Donoghue: If it is a military capability that we need - and, if you remember, the Defence Industrial Strategy was all about what military capability will we need in the future; and therefore what industrial capacity will we need in ten, 15, 20 years' time, and how much of it can we get from overseas and how much of it has to be onshore? To pick up what you were saying, where we decided we have a capability in this country that we must retain in this country for whatever reason - operational sovereignty reasons perhaps - then it is the Department that pays. Whether there is a broader governmental issue or not is a bit above my pay grade; but at the moment, you are absolutely right, we pay.
Q89 Mr Jenkins: How do you cost that in the equations of the Gray Report?
General Sir Kevin O'Donoghue: If you delay something there are two ways you can do it: you can delay it and tell industry that it is just going to have to make people redundant and slow the production rate down; or you can say, "No, we don't want you to make people redundant. We want to maintain those skills and competences that you have got. We don't want people disappearing", and you pay them to do it over a longer period of time. Most industry will have contract workers as well, so the core skills we need to maintain, not necessarily the number of contract workers.
Dr Tyler: We do implicitly and explicitly build that into our planning. Quite often the conversations that Mr Lester and I have are around the costing in of that long-term cost to ensure that we have got the capability available to us; and that comes in the form of both costs and benefits which are then costed into the budget every year as part of our normal course of business.
Q90 Chairman: When you delay the aircraft carriers, for example, that is £650 million, or is it £700 million?
Mr Lester: I think the figure is £654 million.
Q91 Chairman: That cost presumably then falls on to the equipment that you would not otherwise be able to buy with that £654 million?
General Sir Kevin O'Donoghue: It forms part of the planning process for future years. You are absolutely right, it means that £65 million a year, if it is a straight profile, will fall into the equipment programme in future years.
Q92 Mr Hamilton: When you talk in terms of making a saving over the next couple of years because of the delay does that then take into account the added cost when that contract finally does come into fruition, because there will be an increase in the cost because you have delayed it?
General Sir Kevin O'Donoghue: Yes.
Q93 Mr Hamilton: That takes account of that in each of the years where you are making a saving, so it is a false figure?
General Sir Kevin O'Donoghue: It was a saving in the early years, and a cost in later years.
Dr Tyler: The cost in the later years exceeded the saving in the early years.
Q94 Chairman: In the memorandum that you have produced for this inquiry, page 12, at the bottom of that, "The direct impact of the Equipment Examination re-profiling measure ... was in the order of £700 million". I know £46 million between friends is not a huge amount of money, certainly not in the Department's terms; but why did you not say in this memorandum "£654 million"?
General Sir Kevin O'Donoghue: I am struggling, Chairman, just to find the page. It is not my page 21, I am afraid.
Q95 Chairman: It is in the bit about the Queen Elizabeth Class Carrier key events/decisions over the last 12 months and the question is: "What is the cost penalty of rescheduling the aircraft carriers?" Then: "The direct impact of the Equipment Examination re-profiling measure to reprioritise cost in the first four years and to delay each ship by one and two years respectively, was in the order of £700 million". Were you rounding up there?
General Sir Kevin O'Donoghue: No, if I remember that was before -----
Dr Tyler: I think £700 million is a round-up on the number, yes.
General Sir Kevin O'Donoghue: I would have to check that.
Q96 Chairman: The reason I raise this is, the difference between £700 million and the £654 million that you, Mr Lester, were just talking about is double the pain that you were prepared to take over the Territorial Army training. If you had ferreted around a little, might you not have saved the Government just a little embarrassment?
General Sir Kevin O'Donoghue: The difference between £650 million and £700 million is the extra cost which will occur in the later years. It is not a saving this year that could have been used to buy out -----
Q97 Chairman: I am talking about something different.
General Sir Kevin O'Donoghue: I am sorry, I misunderstood you.
Mr Lester: The Territorial Army saving was an in-year savings measure, as I understand it. I may possibly have misspoken when I said £654 million; I should have said £674 million. I think it was a rounding issue and we have just rounded the figure up in the memorandum. The aircraft carrier slippage saved about £450 million in the early years, but in the long-term over the cost of the programme there is this cost growth; so there is no offset between an in-year savings measure on the Territorial Army and a long-term cost growth over beyond ten years.
Q98 Chairman: In essence, you are just putting off the pain, are you not?
Mr Lester: We rebalanced the programme to higher priorities.
Q99 Chairman: By putting off the pain you increase it.
Dr Tyler: The exercise that we were conducting was to try and maximise the amount of money that we needed in the first couple of years in order to spend on other higher priority areas. The exercise that we went through is we looked at the CVF programme, which was a mature programme at that point in time, and we said being practical about this and not completely dismembering the programme, what is the minimum we can take it down to which sustains the programme on a credible basis and returns as much money as we possibly can for other higher priority activities in those early years? That is the exercise we went through and it was an iterative process, and Mr Lester and I were both intimately involved in that iterative exercise, to see how far we could bring that down still retaining a credible CVF programme and maximising the amount that we freed up for other priorities.
Q100 Chairman: Was not the credibility lost given that you had only just let that contract a few months before?
Dr Tyler: We have still got a perfectly credible and deliverable carrier programme on our hands now. Whether or not we made the decision a few months earlier or then, we still would have re-profiled the programme in the way that we did, and we still would have ended up with it costing us more over the duration of the project overall. Simply the increased use of overheads and the price of inflation over that time, there is some fairly basic -----
Q101 Mr Jenkin: What, by extending the programme for two years?
Dr Tyler: Yes, that is right, exactly that. You understand the reasons that you are going to be using the shipyards for two years longer, you have got all the inflationary effects that come with it.
Q102 Chairman: We understand it but do you not accept that the entire process looked a little ridiculous?
General Sir Kevin O'Donoghue: If I can just go back to the Gray Report, I agree with his basic premise that we need a balanced programme.
Chairman: Let us get back to a balanced programme in terms of research.
Q103 Mr Jenkin: Before we just leave this topic, it would be extremely helpful and is it unreasonable for this Committee to ask for a package of comprehensive numbers on all this with your assumptions so that we, and indeed the public, can see what is going on in your programmes; because at the moment we are, as the Chairman says, inflicting future pain on the defence budget for lack of money in the present budget? That seems to be what is happening and I think we are entitled to know why this is happening and how it can be stopped?
General Sir Kevin O'Donoghue: I do not think it is quite as simple as lack of money in the present budget; it is a mismatch between requirement and budget. We can either reduce what we buy ------
Q104 Mr Jenkin: This is a Sir Humphrey answer!
General Sir Kevin O'Donoghue: No, it is a balancing act; that is what the whole planning round is about. I said some time ago, we could spend any amount of money; we have to spend it on the right priorities.
Q105 Mr Jenkin: £65 million per year over ten years is a hell of a lot of cuts in the Territorial Army, if it was all inflicted on the Territorial Army. It has all got to come from somewhere, has it not?
General Sir Kevin O'Donoghue: Yes, essentially it is the equipment programme we are talking about.
Q106 Mr
Jenkin: On Research and Development,
in the Government's response to our last Report the Government said, "...
research is essential in delivering battle-winning military capability now and
in the future"; but the Defence Industries Council report stated that the
Defence Industrial Strategy demonstrated "that those nations which invested
most in R&T had an advantage in military capability over their rivals ..."
but went on to say that "... UK R&T funding had fallen as a proportion of
General Sir Kevin O'Donoghue: You are picking up, I think, a newspaper article. There is no cut on SIT spending, on R&T spending, on C4ISTAR for current operations.
Q107 Mr Jenkin: I appreciate for current operations but we talking about future capability here.
General Sir Kevin O'Donoghue: I think what the R&D Board has done, and I sit on the R&D Board, is prioritise the R&T spending into 12 key areas, which I could go through if you wish, and just make sure we are spending our R&T money in the areas that are going to give us most effect for our money. I think we are now spending our money much more wisely; that is not to say that there have not been reductions in the total R&T money - there have. I think that is a pity but, there we are, we have to balance the budget.
Q108 Mr Jenkin: Afghanistan is the main effort?
General Sir Kevin O'Donoghue:
Q109 Mr Jenkin: That means we are effectively funding current operations out of future capability?
General Sir Kevin O'Donoghue: No. Take armour for example - and without getting into any classified detail - the only reason that we have been so effective with our armour R&T programme, and what has spun out from it for our vehicles, is because we had a 15-year programme of developing armour, and we have got some of the brightest brains around dealing with it. You cannot suddenly spend money on R&T for current ops. You have to have a programme; you have to have those competencies and that knowledge; and that is what we have tried to do. Rebalance where we spend our money into 12 key areas and then concentrate on them, and then when you need ------
Q110 Mr Jenkin: I am sure your decision is rational within the framework, but how much can we carry on cutting overall R&T?
General Sir Kevin O'Donoghue: I hope we do not cut any more in future years.
Q111 Mr Crausby: Some questions on FRES. Quentin Davies in a speech on the 22 October said about FRES that, "The project was an example of pursuing perfect specification, perfect planning and perfect integration. It turned out to be a perfect disaster". He went on to say, "I will not dwell on a sad story. I have now stopped the FRES programme". So where are we on FRES? Is there no future in our Rapid Effect System?
General Sir Kevin O'Donoghue: What he 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.
Q112 Mr Jenkin: What is the point of putting the word "FRES" in front of Scout?
General Sir Kevin O'Donoghue: It is the Future Rapid Effect System, the Scout bit of it as opposed to the indirect fire bit or the engineer vehicle, but it is a family of vehicles - a Future Rapid Effect System.
Q113 Mr Crausby: He seemed to express complete no confidence in what has been a ten-year programme. We have been asking questions for some time and the response we have got is that, "It's all on track. It's all going to continue", but it looks to be in absolute chaos to me.
General Sir Kevin O'Donoghue: As I say, it is really good news. The FRES Scout programme will be on contract - and that is the recce vehicle - in January, February, possibly March, spring next year, which is what I think Mr Davies said the last time he spoke about it.
Q114 Mr Crausby: What about FRES UV?
General Sir Kevin O'Donoghue: We need to come back to that. The priority at the moment was the recce vehicle. We will need to come back to FRES UV because while Mastiff, Ridgback and all the UORs we have been buying for Afghanistan are good - extremely good for Afghanistan - they are not armoured fighting vehicles; they are not good for contingent operations anywhere else; so we will need to come back to it.
Q115 Mr Crausby: What about FRES SV?
General Sir Kevin O'Donoghue: That is the Scout vehicle - SV. Scout is one of the specialist vehicles in the SV class.
Q116 Mr Crausby: So it is just one of the specialist vehicles. How many specialist vehicles will -----
Dr Tyler: With the SV what we are doing is we are buying essentially two things. We are buying what we call the common based platform which, as its name suggests, is the basic tracked platform which will then be used for a lot of different other types of specialist vehicle in the future. The first of the specialist types of vehicle that we are procuring is the Scout vehicle which is the one with the turret and the gun on it - that was the Army's top priority - and the sensors.
General Sir Kevin O'Donoghue: Your comment about it not being a very satisfactory programme was valid. I do not believe it is valid any more and, as I say, will be on contract with the most important variant for the Army at the beginning of next year, in a matter of months.
Q117 Mr Crausby: Prior to those comments he said, "Only very sparingly should you invest in new concepts". I got the impression that what he was really talking about was buying off the shelf. This business is just far too risky and far too expensive. To what extent are we going to buy off the shelf?
General Sir Kevin O'Donoghue: That is what we believe. The two contenders for the current competition are vehicles that are in existence. We are not designing them from nothing. There are vehicles out there which will meet the requirement. What we are looking at is to see which best meets requirement.
Q118 Mr Crausby: Where does that leave the UK manufacturing base? To what extent will they be involved in overhaul and repairing?
General Sir Kevin O'Donoghue: Overhaul and repair of course will be done here. Actually much more importantly in my view is the upgrade work that will go on throughout the life of these vehicles. That set of engineering competences which allow you to upgrade complex weapons systems and integrate new systems onto them that is what we must retain in this country.
Q119 Mr Crausby: Do we have any idea about timetable?
General Sir Kevin O'Donoghue: Yes, it will be on contract in January/February -----
Dr Tyler: ----- in early next year. We have received all the bids in now for two
major projects: one being the FRES Scout
project and the other being the Capability Sustainment Programme for the Warrior
vehicle. In both cases we have two
bidders; those bids are under assessment at the moment, so obviously there are
commercial in confidence issues here. I
can assure you that in both cases, the Warrior bidding and also in the case of
the SV bidding, all the bids have got a large
Q120 Mr Crausby: To what extent has the UOR programme really affected all of this? To what extent will it continue to affect this?
Dr Tyler: The UOR programme is obviously very
specifically focussed at
Q121 Mr Crausby: Am I right in saying that the FRES programme has not stopped then?
Dr Tyler: No, it has not stopped.
General Sir Kevin O'Donoghue: The FRES UV programme was stopped, but the overall FRES programme is continuing.
Dr Tyler: The FRES name was used, if you like, as a sort of overall name describing a whole family of different types of vehicles. The reason why they were held under this banner of FRES is because it was important, and remains important, that those vehicles were able to operate very well with each other, communicate with each other and be compatible with each other in all sorts of different ways. As originally conceived, and that concept has not gone away, what we wanted the Army to have was a whole family of assets which were able to work together on the battlefield. When we look back in the rear view mirror now and think about why was it 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". So we said, "Right, we'll go back to first principles again. We will say to the Army, 'What is your top priority?'" They made it very, very clear to us that the Scout vehicle, which was part of the FRES family, was their top priority, closely followed by the UV vehicle; so we said, "Right, we'll concentrate our main effort on the Scout vehicle", which is what we have done. We worked very hard with the Army to get the requirement very quickly tied down, and made sure that areas of significant technical risk and so on, or areas that would prevent us from looking in the open market for vehicles that already existed, were excluded. We nailed down the requirement, and since that time we have been driving at very, very high speed to get the project to the state where we will have a competition. We have got the bids back in; we are deep in the assessment of the bids now; and we will hopefully have it on contract early in the new year.
Q122 Mr Crausby: Has Quentin Davies changed his mind then?
Dr Tyler: No.
Q123 Mr Crausby: He sounded pretty clear to me. He says, "It turned out to be a perfect disaster. I will not dwell on a sad story. I have now stopped the FRES programme".
Dr Tyler: I can say, he was referring to the FRES programme as we previously conceived it; and you yourselves have described I think only last year the FRES programme as "a fiasco". What we have done is said, "Let's look at the individual constituents of the FRES programme".
Q124 Mr Crausby: The MoD's response was that it was not a disaster and we intend to continue.
Dr Tyler: I was only describing what you described it as last year. The Minister has clearly made statements recently as you have just quoted to us saying that it was not the best piece of procurement that he had ever seen. I have to say, I would agree with that. I think there are a lot of reasons why the FRES programme, as originally conceived, was unsuccessful. All I am saying now is, concentrating on the positive, we spent the whole of the last year reassembling, realigning that programme to get it on the straight and narrow and concentrate on delivering vehicles that the Army require, and we are within reach of victory now in getting some vehicles on contract early in the next calendar year.
Q125 Mr Crausby: He says, "I will not dwell on a sad story". I think he needs to dwell on a sad story. We need to know because it gives me the firm impression in what he says that, "I have now stopped the FRES programme". That needs to be clarified as to exactly where our manufacturing base stands?
Dr Tyler: 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. The name, frankly, I cannot get excited about. What is important is that we are now focussed on delivery. We have got a project that is very, very close to getting on contract with industry; and we will soon, hopefully, have some Army vehicles on our hands under the programme previously known as FRES.
Q126 Chairman: It is still looking like a fiasco, is it not?
Dr Tyler: No, far from it. Absolutely not.
General Sir Kevin O'Donoghue: Absolutely not.
Q127 Chairman: Jolly good, because last year we said it was a fiasco. You said, "No, no, it is not." This year the Minister says it is a fiasco. I say it is a fiasco now. Do you not agree?
Dr Tyler: No.
General Sir Kevin O'Donoghue: Absolutely not. We have turned the corner, as we have in a number of projects.
Q128 Chairman: We are trying to get to the bottom of whether the FRES programme still exists.
Dr Tyler: We are assessing two bids at the moment from industry against a detailed specification, bids the paper work for which is inches high, and I have got teams working literally seven days a week assessing those bids in order to get us into a position to be able to award a contract early in the New Year. That sounds like progress to me.
Q129 Chairman: Early in the New Year. Does that run the risk of falling into the General Election?
Dr Tyler: There is always a risk, but we are working to a programme which would deliver us a contract award before we got into the General Election period, and I do not know what the timing of the General Election is specifically going to be.
Q130 Mr Crausby: It is one thing to keep buying vehicles - I think we all accept that - it is another thing to have a Future Rapid Effects programme that was supposed to be planned and integrated over a period of years. It seems to me that all of that has completely collapsed.
Dr Tyler: I think it is very important that we deliver some vehicles, and the criticism that I think has been levelled at FRES by yourselves and others in the past has been that FRES was not delivering anything. Now it is on the verge of delivering something and I have said several times that what is really important is that we do not lose the "S" of FRES, the system piece of it, and that we have put instructions within our organisation to make absolutely certain that when we buy, first of all, the first of the Specialist Vehicles, the Scout vehicle, and then, subsequently, the other variants of the specialist vehicles, when we buy the Utility Vehicle, that we are buying vehicles that can operate together, communicate with each other and work together on the battlefield along with the legacy vehicles and also with a dismounted soldier and ISTAR assets and all the other things that we have to link together in the battlefield. We have not lost the essence of FRES, which was to have an overall systems view of it - that has not been lost.
Q131 Chairman: But, according to the Ministry of Defence, for the last 20 years this programme has been on the verge of delivering something and some of the people who have borne the consequences of no delivery have been defence industry. Is there any thought of the Ministry of Defence compensating defence industry for the money that they have had to spend themselves on what the Minister now describes as a perfect disaster?
Dr Tyler: I think you will find that the key industries who have been involved in this over an extended period of time are involved in the current bidding for the Scout project and, therefore, they have got a potentially very large prize there, in industrial terms, if they are the successful winners of the competition.
Q132 Chairman: So they do not learn from experience.
Dr Tyler: I do not understand that question.
Q133 Chairman: They have been trying to get some contract out of this for the last 20 years. Not a lot has happened.
General Sir Kevin O'Donoghue: One of them will get a contract in the first months of next year, subject, as you say, to the General Election.
Q134 Chairman: But there is no thought, then, of compensating defence industry for what the Minister himself has described as a perfect disaster.
General Sir Kevin O'Donoghue: No.
Dr Tyler: I think that, of a number of different parties, industry also has been one of the contributing architects to the problems that we have had with FRES in the past, along with the MoD, along with the acquisition part of the MoD, along with the centre, along with the Army.
Q135 Chairman: Is the Ministry of Defence paying for the costs of bidding into this new contract?
Dr Tyler: No, we never do.
Q136 Mrs Moon: Can I get it clear in my head. How much does this perfect disaster actually cost?
Dr Tyler: I do not think that is a question that you can put a number on in that way. We can say what we have spent. If I take an example as being the Utility Vehicle programme (and I do not have the precise number here but we can let you have it), we have spent tens of millions of pounds on the activity that led up to the abortive Utility Vehicle competition this time last year, which was one of the reasons, I think, that prompted your description of the programme as a fiasco last year. However, that is absolutely not wasted money. There might be some aspect of it that one can point to and say that might have been nugatory spend, but actually the vast majority of it went in looking at the overall system approach that we were taking to FRES, and we are using all of that, as we speak now, in the competition. It has also given us a very firm basis of the requirement for a Utility Vehicle, so that when priorities permit in the planning round we will be able to very rapidly get a Utility Vehicle specified and get the bidding underway for it. So an awful lot of the money that we spent previously has provided value, which we are using today and will continue to be using in the future.
Q137 Mrs Moon: How many tens of millions has this learning curve cost: 10, 20, 30, 50, 80 million? What are we talking about? Give me some global figures here.
Dr Tyler: I could not give you a precise number now, but we are at the upper range of your estimate.
Q138 Chairman: The suggestion last year was £150 million.
Dr Tyler: For the UV programme, I think. I was going to say 140, but it is of that order.
Q139 Mrs Moon: It would have been £140 million for the UV vehicle out of which we have learnt, what, ten million worth of lessons?
Dr Tyler: I think the vast majority of the money that we have spent on the UV vehicle - and bear in mind that that was in the context of the overall FRES programme (and back to the point about the system, the "S" of FRES being very important) - has been spent in understanding a system of systems, that will be all of the vehicles that will sit within the FRES programme going forward. I would say the vast majority of that has not been nugatory spend.
Q140 Chairman: You said "a system of systems for the FRES programme". The Minister, when he says, "I have now stopped the FRES programme", was wrong about that.
Dr Tyler: No, he did not say, "I have given up on a systems of systems approach to the future Army vehicles." He said, whatever his wording was, "I have dismantled the FRES programme as you would have conceived it previously."
Q141 Chairman: He will confirm all this when he comes before us, will he?
Dr Tyler: I expect so, yes.
Q142 Mr Jenkins: Dr Tyler, I have not got the figures to hand, but some of the figures I have heard in the past and seen in the past with regard to different elements of this FRES programme - I am not saying what we have gained an advantage of - up until now, with a vehicle turning off the production line, we must have spent something like a billion pounds on this programme?
Dr Tyler: I do not recognise the number of a billion pounds.
Q143 Mr Jenkins: Could you come up with a figure that you do recognise?
Dr Tyler: We can give you numbers. We can give you a written number of what we have spent on the programme previously known as FRES in the past.
Q144 Mr Jenkins: Bearing in mind the four-wheel drive, the electric motors, the whole lot.
Dr Tyler: Some of the underpinning technology as well, which, of course, is extremely pertinent.
Q145 Mr Jenkins: Procedures, trials, et cetera.
Dr Tyler: Yes.
Q146 Mr Jenkins: Can you give us the complete package and we will see how much short of a billion pounds it comes to?
Dr Tyler: We will provide you with the numbers for that, but you should also recognise that a huge amount of that has been building for the future, and the fact that we have been able to get the Scout competition running so quickly and specified and the requirement settled, and so on, is a testament to how much investment we have made in the FRES programme in the past.
Q147 Mr Jenkins: In the credit column there will be other things.
Dr Tyler: Yes, we will present it like that.
Q148 Mr Jenkins: If you would do that please, I would be very grateful.
Dr Tyler: We will do that for you.
Q149 Chairman: Is the LPPV programme part of the Scout.
Dr Tyler: No, that is completely separate.
Q150 Linda Gilroy: Understanding FRES - what it was, what it is and what it will be - is a bit like wrestling with jelly for somebody who is not an Army vehicle anorak. I found your reference to the "S" bit being the focal point, the system, helpful up to a point, but I still do not understand what the difference is going to be in the "S", the system bit of it, say, by 2015. What was the original concept and how does the concept that you are now bringing online look different from how it was originally?
Dr Tyler: The system philosophy has not changed. The system philosophy is about, instead of us having a whole bunch of individual vehicles which are bought completely independently of each other and do not have commonality in terms of the way they communicate, for example, in different communication systems, in different vehicles, do not have commonality in the way that key equipments on the vehicles are used, like sighting systems and other sorts of electronic systems, which then reduces things like the training burden for individual troops and allows the vehicles to operate and transfer data between each other, all of those sort of things are the things that sit under this overall label of the system, the system of systems.
Q151 Linda Gilroy: How will it look different with the present direction of travel in 2015 from how it was originally envisaged to look? What is the capability that we are now buying?
Dr Tyler: What we are buying is a set of Army vehicles which, when you lay them out in the car park in years to come, will be interoperable. They will be able to talk each other, they will be able to work together on the battlefield to deliver an overall capability rather than just being a miscellaneous set of Army vehicles.
Q152 Linda Gilroy: But not as well as they would have done, as originally envisaged, or in a different way.
Dr Tyler: I think better. One of the mistakes, perhaps, that I would point to with FRES is that it sat in its own little bubble. It was thinking very much about its interoperability within the vehicles that were going to come out of the FRES programme itself, it was thinking less about how are those vehicles going to then operate with the legacy vehicles, some of which will be around for some time to come, how much are they going to be able to operate with things like the ISTAR assets - unmanned air systems, and so on, that at the time that FRES was originally conceived was all relatively new stuff that has come on enormously since we have been in Afghanistan - how much is it going to be able to communicate with the dismounted soldiers? All of those things are the things that, I think, we have added now into the programme previously known as FRES to keep the systems principle running very strongly in the programme, and within our organisational construct we have set up the organisation so that that system of systems activity is now running across the whole of land systems and not just for a specific family of new vehicles.
Q153 Chairman: Dr Tyler, was not the original concept of FRES, not a collection of vehicles, but a system such as you describe? Is it not something that you are now going back to as opposed to coming to for the first time?
Dr Tyler: I do not think we have changed our philosophy at all.
Q154 Chairman: The point I am making is that the reason it was not called a "family of vehicles" but was called a Future Rapid Effect System was that right from the beginning of the concept it involved, surely, all the ISTAR assets and everything else that you are now talking about.
Dr Tyler: As I say, I am not trying to suggest that we had not thought about any of this before, but organisationally and in terms of the way the requirement had been established and in terms of the way we are managing the budget lines, FRES was largely being treated within a bubble, and now it is not being treated within a bubble. It is very much an integral part of the Land Systems programme overall.
Chairman: I was really making a different point, but let us now turn to a different programme that is not entirely your fault.
Q155 Mr Jenkin: Can we remember when the A400M was first put into the programme? Was this mid 1990s, early 1990s, late 1980s?
General Sir Kevin O'Donoghue: The answer is we cannot, but some time ago.
Q156 Mr Jenkin: When is the first flight going to take place?
General Sir Kevin O'Donoghue:
Chairman, I am
going to
Chairman: Yes, you may, because I think that that is something on which we would welcome some private briefing.
Mr Jenkin: Do you want me to leave this then?
Chairman: Yes.
Q157 Mr Jenkin: Can I ask a general question and we can come on to the first flight and the contract conclusions later on. You described this programme as an example of the worst slippage and "not my fault, gov", because this is an international collaborative programme where the slippage is out of your control, and I think we accept that, but what are the lessons that we draw from this programme?
General Sir Kevin O'Donoghue: The lesson I draw from it 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. So that is one end of the spectrum. At the other end of the spectrum, if you have got seven or eight partners, they have all got a view, and it was David Gould, I think, two years ago, if you remember, said the programme slipped one year right at the beginning because it took the German Government a year to sign the MoU. It is very difficult to cope with that. My preference would be a bilateral product which others could join. That would be my lesson.
Q158 Mr Jenkin: So a JCA model.
General Sir Kevin O'Donoghue: Yes, either JCA or various other projects that are in the pipeline. I would like to go with one other nation and then invite others to join in.
Q159 Mr Jenkin: Would you be able to flesh out that conclusion with evidence to make a good recommendation for our report?
General Sir Kevin O'Donoghue: In about six months probably. I am being a bit hesitant because there are a number of things on the go at the moment where I think we do need to move forward with other countries, but I am not quite ready to go public on it yet because there are commercial and political debates going ahead, but that would be my preference: go with one country and let others join in, not on the same equal basis of decision-making.
Q160 Chairman: I would like to probe precisely the extent to which you wish to speak to us in confidence. Is it about the general state of the current programme?
General Sir Kevin O'Donoghue: Yes.
Q161 Mr Jenkin: How early it is likely to fly?
General Sir Kevin O'Donoghue: And where we are with our discussions as to how it might go forward.
Q162 Mr Jenkin: We have lost another couple of years. Is there any chance of making that up?
General Sir Kevin O'Donoghue: I do not think so.
Q163 Mr Jenkin: What about the capability gaps that that leaves? How crucial are they?
General Sir Kevin O'Donoghue: As you know, we have signed the FSTA contract (Future Strategic Tanker Aircraft). Those will come in. We are looking at C17s.
Q164 Mr Jenkin: We have heard about a C17. Are we actually looking at C17s, plural?
General Sir Kevin O'Donoghue: It all depends on the affordability issue. One, I think, we are definitely looking at. I would like to look at a second, but you have to balance the budget.
Q165 Mr Jenkin: What about the fact that we are using our C17s so intensively that we are using up their hours much more quickly? Has that not got to be factored in?
General Sir Kevin O'Donoghue: They will go into deep maintenance. One will be taken out of the equation over the next few years persistently for deep maintenance.
Q166 Mr Jenkin: Inevitably, I have to ask the question: we have survived so long without the A400M. Do we really need it?
General Sir Kevin O'Donoghue:
The air bridge,
which is absolutely vital to
Q167 Mr Jenkin: Given the unlikelihood of mounting operations on this scale without coalition parties---
General Sir Kevin O'Donoghue: It is not just on this scale. Quite small scale operations require, depending where they are and the nature of them, air lift.
Q168 Mr Jenkin: Am I right in saying that we cannot land C17s at Camp Bastion?
General Sir Kevin O'Donoghue:
Yes, we can. Yes, we are.
We will be able to land Tri-Stars at
Q169 Mr Jenkin: If we have got C130s and C17s, why do we need this intermediate aircraft? Why do we not just buy more C130s and C17s?
General Sir Kevin O'Donoghue: 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.
Q170 Mr Jenkin: If you were rebalancing the programme, this is not one of the items that would be rebalanced?
General Sir Kevin O'Donoghue: I do not think so.
Mr Lester: It is not what is currently in our sights for being rebalanced, no. Essentially, even with the pressures on the programme, it is still looking like quite a cost-effective capability at the moment.
Q171 Chairman: At the end of this meeting, it does not sound as though we need to take very long about going into private session.
General Sir Kevin O'Donoghue: No, no.
Q172 Chairman: A few extra questions about the aircraft carriers. These are ones to be rattled off. The 654, or 674, or 700 million, or whatever, extra cost of delay, does that take into account and include the cost of keeping on the existing carrier capability?
Dr Tyler: No.
General Sir Kevin O'Donoghue: No, this is just straight carrier.
Mr Lester: There is an offsetting saving. If we operate our existing carriers for longer, then we are not operating the new carriers, obviously.
Q173 Chairman: But, presumably, the older carriers are more expensive, in efficiency terms, to operate in some respects?
General Sir Kevin O'Donoghue: Yes, but, depending on how long you have to extend them, you might not have to refit them.
Dr Tyler: And they are a lot smaller.
Q174 Chairman: Have you made a decision yet about refitting?
General Sir Kevin O'Donoghue: Yes, we are proposing to refit Illustrious.
Q175 Chairman: The cost of refitting the Illustrious is not included in this X hundred million?
General Sir Kevin O'Donoghue: No, but we would have refitted Illustrious anyway on the original timetable. It is not an additional refit, because the carriers are delayed, if that is behind your question.
Q176 Chairman: That was the question. The next question is this. I think this £65 million a year, you said in your memorandum, would be managed by the Department, how exactly?
Mr Lester: 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. That is the process we are going through at the moment and, in the longer term it is what we will be looking at in the Defence Review.
Q177 Chairman: Along with the Territorial Army training, the Officer Training Corps - all of those others?
Mr Lester: I expect the equipment programme to sort itself out and not to be cross-subsidised by the Territorial Army.
Q178 Chairman: Do you think that the alignment of the carriers and the Joint Strike Fighters are now appropriate in terms of timing?
Mr Lester: Yes.
General Sir Kevin O'Donoghue: Yes, the Joint Strike Fighter will come into service; the carriers will come into service. Quite understandably, the proposal is that we have an IOC (an initial operating capability) land for the Joint Strike Fighter, so the Joint Strike Fighters will be worked up, the carriers will be worked up and, at the appropriate point, they will come together.
Q179 Chairman: Do you know exactly when you will make a decision about the number of Joint Strike Fighters? You said in your memorandum this will not be before 2015.
General Sir Kevin O'Donoghue: We do not need to make that decision until 2015. I would imagine it will be in 2015, but we do not need to make it until 2015.
Q180 Chairman: Once you have decided how many to buy, how quickly can they be brought into service?
General Sir Kevin O'Donoghue: I think pretty quickly. We are pulling off, as you know, up to 150 out of a total build of some 3,000. It is not like a UK-specific programme with all that design and development. That is going on at the moment. I do not think it will be that difficult. They will come off quickly.
Q181 Chairman: I have said this before, and it is perhaps a bit mean, but we all know what "up to 150" means - it means fewer than 150, particularly nowadays with the pressure that there is on defence budgets. Do you have any sort of rough ballpark figure? If you were putting this "up to" figure into ministerial speeches now, what would be it be?
Mr Lester: It would be up to 150, I think. One thing I can say is there has been some speculation that we have cut the number of JSF we are planning on buying, but we have not, so up to 150 is still right. There has not been a cut which is somehow buried within that figure.
Q182 Chairman: But you know what you are planning on buying, do you?
General Sir Kevin O'Donoghue: Up to 150.
Q183 Chairman: You know what you are planning on buying. You said, "There is some speculation that we have cut the number of JSFs we are planning on buying."
Mr Lester: What I am saying is that there are a lot of variables in how many airframes to do with how we train and what the capability of the aircraft turns out to be once we start trialling them, but what we have not said is this is a capability that we are going to cut the numbers against.
Q184 Mr Jenkins: The interesting date about 2015 when we start ordering, do we have to put a total order in at that date or can we take them in tranches?
General Sir Kevin O'Donoghue: We will take them in tranches.
Q185 Mr Jenkins: You can order 30, 30, 30, over a period.
General Sir Kevin O'Donoghue: Yes.
Q186 Mr Jenkins: So the last order might be 2025, for instance.
General Sir Kevin O'Donoghue: It could be. Of course, what is a huge advantage with Joint Strike Fighter is that when we bought Harrier we had to buy what we call the "attrition buy" as well - we bought a certain number of aircraft which included an attrition buy - but with Joint Strike Fighter, because it is such a big programme, we do not need to buy those until we need them. So, absolutely, it will go on for quite some time.
Q187 Mr Jenkins: When we start ordering them, of course, there will be some trials, sea trials, for these things to land. We will not want large numbers; we will want a small number.
General Sir Kevin O'Donoghue: We have ordered three. We have three on order, which are the OT&E aircraft (operational test and evaluation aircraft). They have been ordered. They will come in at 2012.
Dr Tyler: They are being delivered into the test programme in the next a couple of years, yes.
General Sir Kevin O'Donoghue: They will be flown by Royal Air Force pilots as part of the operational test and evaluation programme.
Q188 Mr Jenkins: These three cannot land on the carrier because the carrier will not be there until 2015?
Dr Tyler: They are going into a test
programme in the
General Sir Kevin O'Donoghue: They will join with the US Marine Corps with their STOVL aircraft as part of the test and evaluation programme.
Q189 Mr Jenkins: We will be sending these pilots over to the US to get their training.
Dr Tyler: During the test programme we
will have our test pilots over there operating within an integrated test
programme alongside the
Q190 Mr Jenkins: When do we intend to put the simulators in place in this category for the pilots?
Dr Tyler: I do not know. I would have to come back to you on that.
General Sir Kevin O'Donoghue: It will be sequenced so that we have the operational test and evaluation flight training programme, test programme. We will get the simulators in.
Q191 Mr Jenkins: We have thought of ordering the simulators, unlike the Apache where we did not order the simulators for a couple of years, did we?
General Sir Kevin O'Donoghue: Indeed.
Q192 Chairman: I have no idea who is in charge of that.
Dr Tyler: We do.
General Sir Kevin O'Donoghue: May I interrupt you? On the carrier, one of the reasons we are being slightly hesitant over numbers is that there is a submission going through the MoD at the moment for a re-approval of the carrier costs. Our numbers are not clear at the moment, and they will not be clear until the IAB and ministers have approved them, and that will be out fairly shortly. I would not want you to think that we are being evasive for the sake of it, but our figures are, as we speak, being refined and a paper submission will go through.
Q193 Chairman: When do you think that paper will come out?
Dr Tyler: A small number of weeks.
General Sir Kevin O'Donoghue: I think it will go to the IAB in December, this month.
Q194 Chairman: So it will go to ministers in, what, January?
General Sir Kevin O'Donoghue: At the latest, I would imagine, yes.
Q195 Chairman: And it will be made public?
General Sir Kevin O'Donoghue:
Yes, it will
feature in the
Q196 Chairman: When is that going to conclude?
Dr Tyler: The numbers close at the end
of this financial year. You will first
see it in the Ministry of Defence's accounts and then you will subsequently see
it in the
Q197 Chairman: Not meaning to use rude words, the Bernard Gray report says that the planning process is broken, badly broken. Would you disagree with that?
General Sir Kevin O'Donoghue: No, I do not think it is broken. I think there would be better ways of doing the planning process, and I do not think I would disagree, I think we might have to get the budget in balance with the requirement. We have to get our cost estimation much better to give to the programmers so that they have got a clearer idea of what the overall through-life cost will be of some of these programmes.
Dr Tyler: One of the challenges we will always have with the larger programmes, the more complex programmes, is that the costs of those programmes does genuinely mature through time. For many years there was a lot of uncertainty as well as a lot of risk in the programme, which is always going to challenge the costing. That is not to say we cannot do better, because I definitely think we can. In the case of the carrier, for example, one of the things that we did was we pushed Main Gate as far right as we could but we also said that we would agree the final target cost, the cost against which industry is going to be ultimately incentivised. We would agree that two and a half years after Main Gate, and that will be June of next year where we will strike a final target cost which will be the number, if you like, it will be the noose around the neck of the CVF Alliance in terms of delivery, and for me that seems like a very sensible way, and very consistent with Bernard Gray's report, to get oneself to a point where you really have got a thoroughly good understanding of what it is you are buying and the risks associated with it and you have got rid of a lot of uncertainty, as opposed to the risk, to then being able to confirm and stick to a number. One of the things that we have constantly done to ourselves over the years (and it has been self-inflicted harm in many ways) is trying to commit ourselves to a number long before we really credibly should be able to.
Mr Lester: One of Bernard Gray's criticisms in relation to the planning process was some of the behaviours it engenders. I think there he was quite shrewd. A lot of the measures we are taking to improve our process are about sorting out behaviours and forcing us to be more honest, I guess, and making it less prone to vested interest is too strong a term, but to make sure that we have robust---
Q198 Chairman: Perverse incentives would be fair, would it?
General Sir Kevin O'Donoghue: Yes.
Mr Lester: Perverse from the wider defence point of view. It probably would be fair, yes.
Chairman: And that is not vested interests!
Q199 Mr Jenkin: Can I ask about how planning rounds operate? Is one of the reasons the programme has got overheated because there has been too much wishful thinking about programme costs in order to squeeze them through the Treasury mangle, and the only way to get the Treasury to sign things off is to pretend they are going to be cheaper than they are?
General Sir Kevin O'Donoghue: No, I do not think that is correct. There is certainly what, you will remember, Peter Spencer used to call the conspiracy of optimism, but I do not think it is to get through the Treasury. It is a genuine lack of understanding about what things will really cost, and that is why - what I was talking about earlier - the cost estimation process that I have down in Abbey Wood, which I hold on behalf of the department as a whole, has to be able to give independent costings which everybody then accepts and people do not shave bits off because, with a bit of luck, the risk will not materialise. It is accuracy in costing, sticking with that cost, putting in management risk funding because it will certainly materialise as the project unfolds.
Q200 Mr Jenkin: When we were talking about your estimates of how much the programme has overheated, should that not be part of the negotiation and agreement with the Treasury? Your 50% risk factors, they should be in the programme, signed off by the Treasury. The Treasury should be signing off the risk as well as the number.
Dr Tyler: The Treasury's interests are that we are living within our means. They agree the means and we have to find a way to live within it. Of course, they are very interested to see how we are going to do that and they spend a lot of time looking at the detail of that, not just the generality of that, but the planning process itself, fundamentally, in terms of its general approach, is not flawed; it is very simple and it is very similar to what we would do in industry. You start off with a set of assumptions. Put simply, Mr Lester and his people set a set of assumptions, they provide them to DE&S and say, "Please cost everything" - new projects, support for projects and so on - against those assumptions. That is the stage one of the planning round. We have several screening sessions but we end up with a big session where we agree that, against all of those assumptions that we have been given, everything is costed what we call tautly and realistically. Clearly, history would show that sometimes our tautness and realism leaves a bit to be desired, and that is where we have got a lot of room for improvements, as the CDM has said. Inevitably, again for the reasons we have talked about today, our eyes are bigger than our tummies, and so when we come and look at the full costing of the whole programme against the resources we have got available, we find that we have not got the resources required to fund everything, we then go into stage two, and what stage two is about is running what we call options against that, which is essentially the iterative exercise of balancing our books. This is something that Mr Lester's staff will do. They will generate these options, which will be things like, instead of buying 28 of those, how about if we bought 15 of them, what are the capability implications, what are the industrial implications, what are the cost implications what are the time implications, at a very, very low level of detail? This is a huge exercise. How many options, Guy, will we typically raise in a year?
Mr Lester: It might be several hundred sometimes.
Dr Tyler: Several hundred, and that is that iterative process of balancing our budget. Then the third stage of it is where we would then be looking at things that we need to add into the programme, new things that have come along, enhancements, and we would be looking to balance those with the options which are taking stuff out of the programme.
Q201 Linda Gilroy: The competition for the delayed procurement of the MARS tankers has just finished, but legislation bans the operation of non exempt single hulled tankers from 2010 onwards. The MoD has got an exemption, but what does that mean in terms of the sort of restrictions that the continued use of the single hulled tankers will have to operate under?
General Sir Kevin O'Donoghue: There are some geographic restrictions and some nations do not allow single hulled tankers into their waters, but it is not restricting naval operations.
Q202 Linda Gilroy: In terms of extent and significance, can you give us some description?
General Sir Kevin O'Donoghue: I do not think it is affecting operations at all. What we need to be careful of is what do we do if something does go wrong, and I do not just mean with our tankers. Our tankers are very well maintained; I do not think ours are going to go wrong. What happens if a single hulled tanker from some other nation gets holed and internationally there is a block on? There are two things. One is that that is why the competition is running, and we need to get on with it, and, secondly, we have, as you would expect of us, a fall-back plan as to what we might do if that were to happen. Bear in mind 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.
Q203 Linda Gilroy: Indeed. There is a review of the Royal Fleet Auxiliary going on at the moment. Are the two things related: the procurement of the MARS tankers and the RFA review?
General Sir Kevin O'Donoghue: No, because the MARS tankers requirement is a requirement. How they are crewed and how that requirement is delivered of people is a different issue.
Q204 Linda Gilroy: Moving on to the Type-45s, when will HMS Daring get the PAAMS capability?
Dr Tyler: 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, from memory, 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 and the company to resolve what the problems were with that final firing.
Q205 Linda Gilroy: Are there cost increases associated with that?
Dr Tyler: Not with that specifically, or if they are they are very minor. The cost of delivering us a working PAAMS system falls with the company.
Q206 Linda Gilroy: On numbers, the numbers have gone down from the original 12 envisaged to six. Their primary role is air defence?
Dr Tyler: Yes.
Q207 Linda Gilroy: I am keen to understand how that works as far as the capital vessels that they are designed to protect. Why was it originally thought necessary to have 12, and can you describe to me what the implications of having six are?
General Sir Kevin O'Donoghue: I pass it to the capability requirement man.
Mr Lester: I am trying to remember why the requirement was originally 12. 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 judgment 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.
Q208 Linda Gilroy: That is based on two task groups, so perhaps an aircraft carrier group and one amphibious group.
Mr Lester: An amphibious one, exactly.
Q209 Linda Gilroy: But not two amphibious groups.
Mr Lester: No, our requirement is to protect two task groups.
Q210 Linda Gilroy: Does that mean that there is one or two needed to escort?
Mr Lester: Two per task group.
Q211 Linda Gilroy: Two would be required to escort a task group?
Mr Lester: Yes.
Q212 Linda Gilroy: That would mean, you would have two, that would be four in use, although I think it has been said that five out of the six would be available for tasking.
Dr Tyler: We are aiming to generate availability of five from six.
Q213 Linda Gilroy: You are?
Dr Tyler: We are aiming to do that.
Q214 Linda Gilroy: What is the contingency arrangement? Hopefully it will never happen, but if HMS Nottingham hit the rocks or Endurance flooded, you would have one spare.
Dr Tyler: Yes.
Q215 Linda Gilroy: What is the contingency plan for that?
Dr Tyler: 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.
Q216 Linda Gilroy: The consequence of reducing from 12 to six is that it is at the very highest end of the risk that can be taken as far as the capability being available in adverse circumstances?
Dr Tyler: I think it is a bit too much to say it is at the farthest end of the risk. We have taken a carefully calculated risk and believe that we can live with that perfectly adequately.
Mr Lester: The other thing is that these task groups, in practice, will be, in many cases, in most cases, probably taking part in coalition operations anyway with other people's navies, particularly the US Navy.
Dr Tyler: I think that is where the Co-operative Engagement Capability comes to the fore as well. In the time that Type-45 has taken to be developed and manufactured the networking side of things has come on tremendously, and we are able to get, if you like, more capability out of the same assets by networking them than we would have done previously, by sharing radar pictures and that sort of thing.
Q217 Linda Gilroy: That is happening, for instance, in the Gulf of Somalia, and so on, at the moment, the allied operations?
Dr Tyler: Whenever we are operating in a coalition operation then, obviously, we are trying to network (it goes back to our FRES discussion earlier) the assets that we have got in the battle space together to the maximum extent possible.
Q218 Chairman: Before we move off this issue of 12 to six, there must have been a rationale for having 12 in the programme originally. I wonder if you could please, look it out in the Ministry of Defence and send it to us.
General Sir Kevin O'Donoghue: Yes, of course.
Q219 Linda Gilroy: The Type-45s have been built fitted for, but not with, some capability, so they can be upgraded as they go through life. Where will these upgrades be done and how will they be procured? Will they be part of the Surface Ship Support Alliance, will they be competition? How will that work?
Dr Tyler: It very much depends on the nature of the upgrade that we are talking about. It is highly likely, in fact I think it is probably fair to say definite, that upgrades would be primed within the Surface Ship Support Alliance but, clearly, if it is something like, let us say, a communications upgrade, that might very well involve one of the key suppliers within the supply chain, if it is a propulsion system upgrade it would involve Rolls Royce - it depends on the nature of the upgrade as to how it would be contracted but the work would be conducted through the Surface Ship Support Alliance.
Q220 Linda Gilroy: When will they be fitted with close range weapons systems: Phalanx?
Dr Tyler: I cannot answer you that question here and now. We can come back to you on that.
Q221 Linda Gilroy: Can I just ask what will be the additional costs of keeping the existing capability in service for longer because of the delays to the Type-45 programme?
Dr Tyler: I cannot remember that number here and now, but it is in the NAO's value for money report on the Type-45, which was published at the end of last year or very early this year.
General Sir Kevin O'Donoghue: I think it was, yes.
Dr Tyler: They did a full audit of that and it is in their report.
Q222 Linda Gilroy: Just before turning to a couple of questions on the Naval Base Review, Astute, in order to maintain the drum beat, confirmation is needed of the order of a fifth vessel. When is that likely to be forthcoming and when will the name of the vessel be announced?
Dr Tyler: We have already got some long lead items.
General Sir Kevin O'Donoghue: Yes, we have ordered the long lead items, so that is underway.
Dr Tyler: Essentially, what we are doing with BAE Systems at the moment is ensuring that they are not without contract cover to sustain their key capabilities as we move through the Astute programme, but at the same time we are also ensuring that we are locking down prices that we can afford for the subsequent boats in the Astute class, and that balancing act is going on as we speak.
Q223 Linda Gilroy: Is that a code for the 22-month drum beat being extended a bit and negotiations being necessary to deal with that?
Dr Tyler: The issue of the drum beat has a lot to do with the sustainment of the key capabilities, and clearly that is our biggest concern, to make sure that we do sustain the key capabilities so that we do not end up in the territory that we did 10 years ago. We are very mindful of that. Yes, there is a view that we can extend the 22-month drum beat a bit, and we are, literally, at this moment, doing studies into that to be clear about what it can be extended to without compromising our capabilities.
Q224 Linda Gilroy: It is a very fragile skills base and, of course, under pressure at the moment insofar as the nuclear elements of it are concerned from the civil market. Is that something in respect of which you have an active programme too?
Dr Tyler: Absolutely, we do. Particularly within MoD we have got a very, very proactive programme, which we can provide you more details of, of what we call the NSQEP (nuclear suitably qualified and experienced personnel). The commercial nuclear, the growth in that business, is both threat and opportunity. Clearly there is a threat that some of our experienced staff will go over there, but it is also an opportunity, because what we are seeing now is an increase in education courses with a very strong nuclear element to them. We are getting a bigger market place of people with the nuclear skills, so in some senses we will be fishing in a bigger market in the future, particularly with young people.
Q225 Linda Gilroy: The Nuclear Skills Academy has a MoD defence dimension to it?
Dr Tyler: I do not know the specific answer to that, but, again, if we provide you with some information about our NSQEP programme you will get the answers to all of that within that.
Q226 Linda Gilroy: On the Naval Base Review, in your submission you set out a variation on a theme, but nothing unexpected, of the announcement that was made that three naval bases would be maintained, but looking ahead there are number of issues which there is a clear interest in, especially from the further south-west side of things. When will the Future Surface Combatant, or the Future Frigate, as I think we are now calling it, numbers and sophistication of the variants be known? There is a programme working on that at the moment I understand.
Dr Tyler: We are just going into the assessment phase, so the blunt answer to that would be not for some time yet until we have conducted a lot more of the assessment phase, and I expect that at a strategic level the requirement will be heavily informed by the Defence Review. So it will be some time yet.
Q227 Linda Gilroy: In terms of numbers and types?
Dr Tyler: The numbers, types, the extent of the capability and so on. It will be some time yet.
Q228 Linda Gilroy: That is something we can expect to see discussed in the Green Paper?
Dr Tyler: I do not believe it would be.
General Sir Kevin O'Donoghue: No, I think the questions will be in the Green Paper. The answers will come in the Defence Review.
Q229 Linda Gilroy: What is the threat analysis and how do these relate to them? Presumably, the timetable for a decision on the base porting of the seven Devonport Type-23 frigates which are there for the next five years, beyond that, will be affected by whatever those decisions are?
Dr Tyler: Yes, it may be, and, again, what we wanted to do was to give some medium-term clarity on the situation, hence the five years, and before that time is up we will be able to make much more concrete, longer-term plans, a lot of which, as you appreciate, are to do with the succession between the Type-23s and the Future Surface Combatant.
Q230 Linda Gilroy: And what the nature of the new future frigate is?
Dr Tyler: Yes, future frigate, if you prefer.
Q231 Linda Gilroy: In terms of what will be looked at - it is a rather more detailed aspect but one which is repeatedly raised at the Devonport end - what examination has been given to the lack of accommodation in the Portsmouth area prior to the base port changes to accommodate additional vessels - Portsmouth is pretty full at the moment - and also to the security considerations of having most of the fleet in one location?
Dr Tyler: I do not think we can give you a detailed answer to that here and now.
Q232 Linda Gilroy: I think I am flagging it up rather than expecting you to answer it.
Dr Tyler: We will certainly provide you with more information. All I will say is that this thing has been studied very long and very hard and we have not got ourselves into a situation where the strategic plans that we have got are not deliverable with the size of the force structure that we anticipate in the future, but we can provide you with some of the detail of the analysis that has gone on, if that is helpful.
Linda Gilroy: That would be welcome; thank you.
Chairman: I think, for one reason or another, Linda Gilroy would like that information as soon as possible.
Q233 Mrs Moon: Before I start, Chairman, can I put on the record that I spent part of an industry parliamentary fellowship with Finmeccanica, so that that is absolutely clear. Dr Tyler, you said earlier on that part of the time you have been guilty of your eyes being bigger than your stomach. I think that, in a sense, has run throughout a lot of today's evidence. In relation to the Nimrod MRA4, an overrun of £789 million, a ten-year slippage. Its in-service date should have been 2000. I understand it is now December 2010.
Dr Tyler: Yes.
Q234 Mrs Moon: Are you confident that there will not be any further delays?
General Sir Kevin O'Donoghue: Yes.
Q235 Mrs Moon: Will the programme be implemented in December?
Dr Tyler: I am as confident as I can be. In the last 18 months, while we have had the sort of stranglehold around the neck of this project, I think I can say that we have met all of the key milestones that we have aimed for, and one or two of them we have been early on. I think CDM and I would both agree that this is probably, I think the technical term is, a dog's breakfast. This is probably the single biggest dog's breakfast of a procurement project that both of us have handled. We are very much in the very late stages of that programme now and I can say over the last 18 months that things have been going extremely well. We have just completed the flight test programme, which is a major milestone, and we are close to being able to handover the first of the operational aircraft. That has not happened yet but we expect that to happen in the near future. The other thing which I should stress is that, over the course of the 18 months, we have not seen any cost slippage whatsoever on the project, and we still have a healthy risk provision left in the project, so I would give it a high degree of confidence.
Q236 Mrs Moon: When will we have the full capability requirement of this dog's breakfast?
Dr Tyler: I cannot remember when we will get the ninth aircraft in, if I am honest with you, but we should have the first one handed over to frontline command very shortly, and then the others will follow reasonably quickly thereafter. I cannot tell you when the ninth one will come into service, but, again, we can provide that information to you.
Q237 Mrs Moon: One of the issues that has been of major concern to the British public has been the issue of transport helicopters. In your opinion (and perhaps Sir Kevin you would like to come in on this), does the Army have sufficient transport helicopters to support the British Army in the field? Are we there? Are we getting there?
General Sir Kevin O'Donoghue: There has been extensive work done on helicopters. We do need to do improvement to the Puma fleet, which I think you are aware of. There is a submission hovering, if I might say, about how we might reshape our transport helicopters. Clearly I cannot go into it now; it is in the processing. I have no doubt it will be announced very shortly, but we have a plan to increase significantly the number of transport helicopters.
Q238 Mrs Moon: How do the numbers relate to the number of troops deployed on active operations and, also, how does that ratio compare with that for other nations within ISAF? How are we looking in terms of comparisons to other nations? Are we under supplied? Do our troops constantly have to borrow? Where do we stand?
General Sir Kevin O'Donoghue: Some nations do not deploy helicopters at all. We are in a coalition. All the helicopters out in ISAF are part of the coalition helicopters, and it is not a question of borrowing so much, it is best use of assets. I think the Chief of Defence Staff said the other day, you could always use more helicopters, but there is a sufficiency of helicopters in theatre at the moment. Yes, we are pushing more out there. The figures I have got written here: there is a 48% increase in the numbers of helicopters between June 2009 and June 2010 and a 45% increase in flying hours. They are building up the whole time but, as CDS said, you could always use more.
Q239 Mrs Moon: Are you happy with the role Merlin is playing in this?
General Sir Kevin O'Donoghue:
Yes, the first
ones are out now. They were in
Q240 Mrs Moon: You are happy with the capacity to fly hot and high and to provide enough lift capacity?
General Sir Kevin O'Donoghue: There is always an attraction in having more lift. There is a balance between the amount of armour you put on, the amount of protection you put on and the lift of the engines, and it is that operational balance that we need to consider. Am I happy? I am happy that we have got more aircraft out there with a lift capability. Would I like it to be a better lift capability? Of course, and we will look to see what we might do about that, but the key issue, I would suggest, is we have got them out there, and that is a plus.
Q241 Mrs Moon: Is it a case of something better than nothing?
General Sir Kevin O'Donoghue: No, they are good aircraft, Merlins. They are big, heavy aircraft. Some of the weight they are lifting is their own air weight, but they are good aircraft.
Q242 Mrs Moon: How does the award of the Puma contract to Eurocopter align with the Defence Industrial Strategy? Are there any UK-based subcontractors that will be working on this?
General Sir Kevin O'Donoghue: I cannot answer that last bit of your question, but I can certainly come back to you on that. Eurocopter are OEM (the original equipment manufacturer), and it was appropriate to include them in the competition, and they came in the most economically. To answer your question about the Defence Industrial Strategy and perhaps put a name to it, AgustaWestland have a lot of work in hand. Again, we never said that all helicopter work would go to AgustaWestland. This is a partnering arrangement we have, a partnership with AgustaWestland. We need to make sure that their skill-sets and their industrial capability and capacity is maintained so that they can deliver military capability for us in the future, and I am confident that we are doing that.
Q243 Chairman: Before we move off that, how is the Puma life extension programme going?
Dr Tyler: It is going very well.
Q244 Chairman: There are no problems that you want to flag up?
Dr Tyler: No. One of the real attractions about the Puma LEP programme is, of course, its low technical risk.
Q245 Chairman: How much extra life will it give to the Pumas once it has been completed?
Mr Lester: Ten years.
Dr Tyler: It is about ten years. I do not have the precise number but, yes, it is in the order of a decade or so.
Q246 Mr Hamilton: Chairman, if we are investing such an amount of money in Pumas which have only got a ten-year lifespan, that does not make sense to me in the long-term, and that was the conclusion of the Committee. Could you explain why is it that, in spite of all that and, indeed, a number of other people saying that this did not make practical and financial sense in the long-term for a ten-year involvement, when you could have taken an alternative which would have given you another 30 or 40 years, you came to this conclusion, in spite of, I think, a logical recommendation to the contrary?
General Sir Kevin O'Donoghue: I think, going back to something I was saying to Mr Jenkin earlier, given unlimited money we would have probably bought new helicopters, but we do not have unlimited money, and there is nothing wrong with the Puma aircraft.
Q247 Mr Hamilton: That is not the question. I understand the money was not the issue because you would have got the same value and there would have been less helicopters coming from the other company in the UK and they would have had a greater capability of uplift. The question I come back to is the one I have never understood. You are investing substantial amounts of money in extending the Puma for a ten-year period, which will not be ten years, it will be less than that, because by the time you get to the ten years you will end up extending it again. Ten years does not make sense to me.
Dr Tyler: The Puma did have a lot of attractions to us from the point of view that it was a known quantity. It is a helicopter that has been very well used and understood by the user. There are a lot of benefits that come through in the other defence lines of development, through things like training and so on, the familiarity, and also, time being of the essence, this was a low risk route to getting a helicopter that was a known quantity very quickly, relatively speaking, life extended and getting it back into active service. One of the things we are trying to do with helicopters at the moment is to get helicopters into service and have as many in service as we can at any particular point in time, and that helicopter is a very important one within the defence inventory and it was important that we were to get it upgraded and back into the inventory as soon as possible.
Q248 Mr Hamilton: Just to be clear, you get these helicopters into operation quicker than taking another contract?
General Sir Kevin O'Donoghue: You get more helicopters into operation quicker by going down the Puma LEP route than you would by buying new of anything else.
Mr Lester: The assessment was that, without a very large amount of extra money in the next few years, we would have a big capability gap in operational helicopters if we bought new helicopters rather than upgrading the Puma.
Q249 Mr Hamilton: The two major factors were availability quicker, and of course, commonality, the knowledge. The other one, you are saying, would have been more money.
Mr Lester: It is the CDM's point, which is that with infinite amounts of money we could afford new helicopters.
General Sir Kevin O'Donoghue: More money upfront would have been needed. I have just been passed a note, the Puma LEP out of service date is 2025.
Q250 Mr Crausby: Did AgustaWestland ever come up with a figure? My understanding is that AgustaWestland said that they could not produce it for the same price, but I do not think we ever saw any detail of that, did we?
General Sir Kevin O'Donoghue: We would have required 44 Merlins, to replace Puma and Sea King. There were only between 14 and 16 affordable by 2015, which is in the middle of the gap, so we would not have had as many helicopters for the same amount of money as we have got with Puma.
Q251 Mr Hamilton: What would have been the uplift of those helicopters compared to the Puma? Would it have been the same, more or less personnel? That is the key question.
General Sir Kevin O'Donoghue: There is a balance between the lift and the number of platforms, which is why I said earlier we increased the numbers. No, I do not know the answer to that. I suspect a Merlin will lift more than a Puma, but I do not know.
Q252 Mr Jenkins: I have got a note here (and I presume it is accurate) saying that the Puma fleet has now gone from 43 to 34 because nine have been damaged and are not expected to fly again as Puma aircraft. Are we renovating those nine fairly heavily damaged Pumas or are we going to stick with the 34 we have got at present in the fleet?
General Sir Kevin O'Donoghue: We will not need 34. We do not need to uplift, improve all 35. I am hedging round this. I apologise for hedging round this. There is a strategy about to be published and announced by ministers. That will set out the numbers of aircraft of various types that we need, and overall you will see it is a significant increase.
Q253 Chairman: If you only need 34, why would you have needed 44 Merlins?
General Sir Kevin O'Donoghue: Because that is to replace the Puma and the Sea King.
Chairman: We will not ask about the future helicopter project.
Q254 Mrs Moon: Can I move on to the Chinook Mk 3. What progress has been made in making them operational?
General Sir Kevin O'Donoghue: The first one was taken over by the RAF this morning. There will be two more in the next couple of weeks, as we said, and the others will come in throughout next year.
Dr Tyler: By the end of the next calendar year we will have them all back in service.
Q255 Chairman: Can they fly in cloud?
General Sir Kevin O'Donoghue: They can fly exactly where all other Chinooks can fly, Chairman.
Q256 Chairman: Then I think we ought to take you up on your suggestion of listening to some further evidence briefly in private. We will now sit in private.
General Sir Kevin O'Donoghue: While this is happening, I have brought body armour with me, Osprey Assault. I do not know if you have had a chance to see it. Would you like to look?
Chairman: We would, perhaps after the evidence in private.