UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 99-iiHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREDEFENCE COMMITTEE
DEFENCE EQUIPMENT 2010
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This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935
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Oral Evidence
Taken before the Defence Committee
on
Members present
Mr James Arbuthnot, in the Chair
Mr David S Borrow
Mr David Crausby
Linda Gilroy
Mr David Hamilton
Mr Mike Hancock
Mr Dai Havard
Mr Adam Holloway
Mr Bernard Jenkin
Mr Brian Jenkins
________________
Witnesses: Sir Brian Burridge, Vice President Strategic Marketing, Finmeccanica UK Ltd, Mr Ian Godden, Secretary to the Defence Industries Council and Chairman of ADS Group Ltd, Mr Ian King, Chief Executive of BAE Systems plc, and Dr Sandy Wilson, President and Managing Director, General Dynamics UK Ltd, gave evidence.
Q257 Chairman: Good morning. It is not yet quite 10.30, but - you will be devastated to hear - we are not being televised and so I think we can start immediately. Thank you all very much for coming to give evidence in our Defence Equipment Inquiry. We heard last week from the Chief of Defence Materiel, and this morning it is the turn of industry to give your assessment of how things are. We said when we announced the inquiry that we were going to concentrate on armoured vehicles, FRES, Strategic Airlift and maritime capability. We asked about those things in the previous session, and in this session we want to concentrate much more on the larger picture, on the process of acquisition. If there are issues on particular programmes that you want to raise, no doubt you will find an opportunity during the course of the morning, but I would like to start with asking about the Bernard Gray Review of acquisition. During the course of the morning, I am afraid, several members of the Committee will have to leave. Please do not take this as discourtesy; it is not intended to be so. We just do, as Members of Parliament, have a lot of competing calls on our time and sometimes we have to be in several places at the same time. I think you have all appeared in front of us. Mr King, you have not appeared in front of this Committee for some years now.
Mr King: I think it is some years ago. I think it was on the FSTA programme some years ago that I appeared.
Q258 Chairman: Welcome back then. Dr Wilson, welcome back.
Dr Wilson: Thank you.
Q259 Chairman: Sir Brian, when was the last time you appeared in front of this Committee?
Sir Brian Burridge: 2003.
Chairman: A little time.
Mr Hancock: It was that memorable, was it!
Q260 Chairman: Mr Godden, you have been here virtually every month.
Mr Godden: Not quite.
Q261 Chairman: The Bernard Gray Review. I want to divide this into two parts. First, the analysis of the problems in the process of acquisition and, second, the solutions that Mr Gray proposes. I will ask some questions about the analysis of the problems first. Do you think that, on the whole, the analysis of the problems in the acquisition process is accurate or inaccurate? What would you say? Who would like to begin?
Mr King: Chairman, we welcome the report. Clearly, there is a lot of detail and analysis in the report and it quite rightly identifies the imbalance that exists between the programme and the budgets and the need to address that issue. I think that is something that we in industry have felt strongly about for some time and certainly in the response we have given before on whether it was right to up-issue the Defence Industrial Strategy we said that the urgent need is to correct the balance between the programme and the budget and then the Defence Industrial Strategy can support that as a balanced structure going forward. I think it is recognised that it is in everybody's interests that the programme and the budget are aligned, but we do feel that we need to go through a proper process, and the right thing is that it does need to start from what is the foreign and security policy of the Government. We are very pleased that all parties have recognised that we then do need to do a Strategic Defence Review, but we are also very, very strong that, as part of that Strategic Defence Review, there does need to be real recognition that industry and the capabilities that we provide are fundamental to the Strategic Defence Review, and so a Defence Industrial Strategy will need to be posted, but it does need to reflect down, as I say, starting with the policy of where we are going to the Strategic Defence Review. There will almost certainly have to be a balancing of that Defence Review around affordability of the programme and then industry will be able to react in terms of a response to the Defence Industrial Strategy and align its resources and capabilities. So, in terms of the recognition in Bernard Gray's report on that as a set of processes, yes, we are supportive of what is said.
Q262 Chairman: Mr Godden, in the ADS memorandum you say, "Much of the Gray report goes to MoD organisational matters. That is a matter for MoD." Surely it is also a matter on which you have views?
Mr Godden: Of course.
Q263 Chairman: What are your views?
Mr Godden: With an organisation that is both a customer and a partner in various fashions, we are bound to have views about how things can be improved, but I think the main point was that the key elements of the Gray report are about how decision-making is made in government between Armed Forces and the procurers, ie the customer, and we did not want to be presumptuous in believing that that set of relationships is something that we would want to have any primary role in. We can comment on it - we have got views on it - but that was a statement really, just to say, of course, that is a matter for government organising its own decision-making in terms of priorities of programme and the decision about which types of equipment and services to develop for the Armed Forces in the pattern, and that was an important statement to make sure that we were not accused of or falling into the trap of believing that we can help government organise itself in terms of the ways in which various departments, service units and divisions organise. Then we have a comment, of course, about how that interacts with industry and how that whole effective interface works, and I think we have two or three main comments about, not so much the report itself, but about the features that we believe this report has highlighted, that decision-making between Armed Forces and procurement, or customer, for industry is very often too lengthy, is quite often unclear or unstrategic, and therefore gets reversed or can have a period of uncertainty created around it, and that aspect of the decision-making and the clarity of decision-making and direction is something that we believe does need to be tackled.
Q264 Chairman: Do you agree with the general suggestion in the Bernard Gray Review that there is a whole series of perverse incentives within the Ministry of Defence leading to inappropriate decisions?
Mr Godden: There are one or two areas where I think we would disagree with the language. The "conspiracy of optimism", for example, I think, is not necessarily the way that we would describe it. I think the description from industry is that there is a problem of constantly shifting requirements, and that is what we observe and feel quite regularly. Whether you use the words "conspiracy of optimism" for that or not, it is the shifting requirements and the simple lack of understanding of the capabilities that can be achieved on the part of the customer. That is the area that we would suggest is as important a language and important a feature. I think on the TLCM ---
Q265 Chairman: I want to come on to that.
Mr Godden: Right. That is what I think in general. I do not know what other people want to add.
Sir Brian Burridge: May I add a little to that? First of all, the Gray report points out the nature of perhaps tribal rivalry and the way that impacts on acquisition decisions. It is a matter for the MoD to sort out, and I think that is what we meant in that comment. In terms of the behaviours that result, those - together with the fact that the programme and the budget are not aligned - give rise to particular behaviours: a lack of strategic thinking such that there is certainty over a period, a tendency to generate complexity in decision-making (and perhaps when we come on to through-life capability management we can explore that) and, thirdly, a failure to recognise that time is cost. These behaviours which either leave decisions tenuous or unmade have a cost to them, and in that respect I think I would doubt that the DE&S themselves were very surprised by that analysis because it is something they constant live with.
Q266 Chairman: Sir Brian, you are the only one of our four witnesses who has actually served in a very distinguished capacity in recent times in the Armed Forces. I think you are, are you not? I just needed to check that. But that part of it, the tribal rivalries part of the Bernard Gray Review, does not strike you as entirely fanciful?
Sir Brian Burridge: No.
Q267 Mr Jenkins: There was just the remark - and I am sure I misheard it - where Mr Godden said, basically, "What has this got to do with us? It is the MoD's problem", but every contractor I have spoken to in recent years has told me that if they did not get the interfering busybodies from the MoD come down every week and all these constant meetings where they constantly reappraise what they are doing and reschedule it or re-spec it, then they could produce the product much, much cheaper and much quicker, and the only reason the MoD is coming down is to occupy their time rather than to process the product. If we continue to make products that are over-priced and have an extended life, we are going to go out of business, because other people are going to come in and offer a much better deal, are they not?
Dr Wilson: Can I comment on that? In a slightly wider context of complexity, which I think is an underlying theme you can read throughout the Bernard Gray report, complexity seems to remain in the way that we procure equipment, and it is not just a DE&S or old DPA issue, it goes right back to requirement setting, and we tend to set over ambitious requirements. Ian Godden has just mentioned this constantly shifting set of requirements where new requirements are piled on top of what is already an over-ambitious requirement, and in one sense, if instead of complexity there was a degree of simplicity introduced into the requirement setting and into what was being procured, we could do a lot more to deliver earlier an initial capability which could then be onward developed through a spiral development process. This has the tremendous advantage of eliminating, or at least reducing, vast swathes of risk that go in the greater the complexity of your target. That leads to faster acquisition, probably better value for money and automatically even improves exportability of the product at the end of the day. So there are many things within the Bernard Gray report that at that level suddenly become quite stark and quite apparent, and the solution to them also looks fairly obvious, at least to me.
Q268 Mr Jenkins: If I could add just one proviso, if we were ordering stuff from a manufacturer like helicopters, we would expect them to fly, would we not? We would not have to put a special sub-committee on to go down there and explain the reasons why they cannot fly at night, at dusk or in difficult conditions. Do you think it is disgraceful that any manufacturer should deliver something that cannot fly properly?
Dr Wilson: I could not comment on that specifically.
Chairman: I think that was a question aimed at me, Dr Wilson.
Q269 Mr Hancock: Can I come back to something you said, Sir Brian, about people's failure to recognise that time is cost. Where is that failure most apparent then? It is quite a startling statement, but it could fall down on both sides, could it not?
Sir Brian Burridge: The requirement setting phase is lengthy, the refinement of the requirement is also lengthy; whereas, as Dr Wilson has said, if the customer were to view a capability that they want to achieve over the long-term but introduce what Mr Gray calls the 80% solution - we would say an initial operating capability - then that could be reduced, because you would get the capability earlier and you would reduce a great deal of the complexity.
Q270 Mr Hancock: As a senior commander, would you have been satisfied with 80%?
Sir Brian Burridge: Yes, and we have some
experience of it in the way in which we introduced Typhoon. Although we were criticised at the outset, we
actually introduced Typhoon in an incremental way. Some of the Committee are well aware and have
expertise, but Typhoon came in with a very basic operational capability - air-to-air
only. If you look at it now - it is in
the
Q271 Chairman: We will come on to incremental development and spiral development shortly. Mr King?
Mr King: We have started off talking about relationships, if you like, and having man-marking in terms of relationships, but there is a number of availability-based long-term support contracts where that man-marking issue has been dealt with and the IPTs between industry and the MoD have been aligned - the Tornado availability contract, the attack contract, as it is called, what has happened on Harrier, as Sir Brian Burridge said, how we have introduced Typhoon into the service, the new munitions structures, the terms of business agreements around the naval sector. All of those address both cost and capabilities to avoid duplication in both industry and in the MoD. I think it is recognised in the Bernard Gray report that in certain sectors we have made massive inroads into reducing duplication.
Chairman: I want to move on. Can I ask you, Dr Wilson, to save it up for a future moment, please.
Q272 Mr Crausby: Bernard Gray describes through-life capability management as "fraught with potential pitfalls in practice". Do you agree with that? Has the Defence Equipment and Support made any progress with the implementation of TLCM?
Sir Brian Burridge: Bernard is right in the analysis of the way in which the DE&S is seeking to introduce TLCM because there is no doubt that they seem to be aiming for the gold standard right away; whereas if one looks at it through another lens and says, "What pragmatic examples are there?" the availability contracts that we have just heard about - the Tornado, Typhoon (now), Harrier, helicopters, Apache (the latest one) - that provides the first step, if you like, in a staircase of TLCM, but what the department are trying to do is seek to trade across what they call "lines of development". In other words, if we invest a bit more in training, does that remove something from the equipment requirement, or whatever? Clearly, there is not a metric that allows you to trade across things as different as manpower, as doctrine, as equipment and logistics and information; so my long-held view is that the degree of complexity that they have invoked is because they are trying to run before they can walk.
Q273 Mr Crausby: But it is achievable, is it?
Sir Brian Burridge: It is achievable to a level, and I think the level of certainty is that you can reach a position where you can make trades between the equipment, its logistics, its information requirements and, potentially, the infrastructure that surrounds it - self-evidently, the size of a fleet of armoured vehicles versus the amount of simulation that is available, for example - but I do not believe that you can readily, at the outset, make a trade across all those things. I think that is terribly complicated.
Q274 Chairman: Before we get off that, Mr Godden, would you like to say something about TLCM?
Mr Godden: Yes, really just to repeat that there is a danger of throwing out the principles of TLCM, which must remain valid (and they do) despite some of the criticisms in the Bernard Gray report, and we would not wish to see the baby thrown out with the bath water on this because the simple version is effective and can be effective. As it gets more complex, it becomes more difficult and we need to carry on the path of working towards that and not abandon that concept. It is a very important concept.
Q275 Chairman: I do not think he recommends the abandonment of the concept.
Mr Godden: No, but I think there is a risk that it will be seen as "Oh, this is all too difficult, therefore, let us put it to one side and say we have got too many other things to deal with." That is the worry, I think; that it will be perceived as too complex to do. Industry in other sectors finds it difficult so this is not unique to defence in terms of being able to implement it. It takes industries many years to adopt these principles, so we would encourage the Ministry to continue with those efforts.
Sir Brian Burridge: It has to be said that the UK is a world leader in availability contracting, etc, and other countries look to our experience, in particular experience in explaining to the Italian Government how all this works, so it is a key capability, and the aspects that have worked very well have taken a lot of cost out of the support of aircraft, etc.
Q276 Mr Hamilton: As I understand Sir Brian, what he is really saying is go for the simplest contract first and then you can build upon that as you go through, but that will be dependent upon who the contractors were going to be, if they are in this country. If you opt for a simplistic approach and then you go for a contract outside the country, you bring all the technologists with that. So it is not as simple as you are saying, is it? It really depends on the issue of who has the contract to start with. I just want to be clear about that.
Sir Brian Burridge: No, that is absolutely right, but, in the case of an off-shore purchase, the challenge is to make the supplier - who is the design authority, owns the safety case, so they are the major stakeholder in what you do - either to provide you from their own capability with an availability contract and construct in the UK or, as in the case of the Hercules, when that came into service Marshalls of Cambridge, as it was then, was the on-shore design authority, so they were able to do everything that the manufacturer could do under licence. There are two ways of doing it, but it is essential that the customer understands that that is where they want to get to and it is essential that they explain to the potential supplier at the outset that that is where they want to get to.
Q277 Mr Hamilton: So under licence should be a real issue for us?
Sir Brian Burridge: I am sorry?
Q278 Mr Hamilton: Under licence. If you take an American company, then it is really important for us at the outset that we talk in terms of making sure that we have the intelligence and, therefore, if we put it under licence, it means we have the rights.
Sir Brian Burridge: Yes; absolutely.
Q279 Chairman: Mr King, you want to talk about the Joint Strike Fighter.
Mr King: In terms of having the licence at day one, the reason why you do need to have a through-life capability management plan, or a view of how you want to take that system or platform through life, is that that needs to determine what sovereign capabilities you do want in terms of a UK requirement and whether you can have access to those technologies. It is not just about the initial manufacturing and the support of it: you will want to upgrade that capability through life and, you are absolutely right, if you do not think about that at day one, you may be left without the ability to upgrade those capabilities to become operational requirements.
Mr Hamilton: Thank you for clarifying that.
Mr Crausby: Bernard Gray also concludes that the MoD has a shortage of people with financial and programme management skills. Why is it so difficult for the MoD to acquire and retain these skills? Is it just a question that there is an overall shortage throughout? Does industry suffer from these shortages?
Q280 Chairman: Mr Godden, everyone is looking at you.
Mr King: I will answer if you want.
Mr Godden: No. There is a shortage, in general terms, of
skill-base in programme management, systems engineering and equivalent, and you
can see that across many industries in the West actually - it is not just
a
Q281 Mr Crausby: Is that a real problem continuity-wise? How long do people stay with the MoD? Do they move on into industry, in the sense that industry gives better rewards than the MoD?
Dr Wilson: Can I interject there. It is not just an MoD versus defence industry issue. In fact, as we progress into the reinvigoration of nuclear energy in this country, we are going to find a whole gamut of technologists being required across a much wider industrial landscape than we currently have in defence, and they are the same skills - systems engineering, complex contracting - all of the usual things that we put a premium on - programme management. So there is a problem in defence just now. We can always do with more programme managers and more systems engineers. As other industries come up in importance, that is going to be a greater problem, and it speaks to us having to have a skills strategy that feeds all of those industries over the next ten to 20 years.
Q282 Mr Crausby: So what do we need to do?
Dr Wilson: Have a skills strategy that reflects the importance of programme management and systems engineering.
Chairman: Can you save it up, Mr King, just for a moment.
Q283 Mr Borrow: I just want to be clear in my own mind whether this is a money issue or whether this is a systems issue within the MoD. Is this something where, basically, the taxpayer is going to have to pay a lot more cash to get the right sort of people to do the job properly and do that in a climate when both major parties are talking about reducing the pay of top public servants? Are we just going to have to bite the bullet and pay a lot more to get the right people, or does something have to happen within the MoD to make it more comfortable for these people to actually be there and it is not necessarily a cash issue at all?
Mr King: It is a nice feed into what I was going to say. There is no doubt that there is a salary structural issue; that if you were to look at what industry is paying these people - because they are a scarce resource across those - then there is a differential, and so, to take your point, you probably do have to bite the bullet if you regard this as a key resource going forward. You then have to put in training schemes, you need a skills strategy and there has to be a commitment to meet these training schemes, because there is not a surfeit of these types of people with these skill sets. If you look into my company, in particular, it is a very recognised function - programme management, project management, whatever you want to call it - and we invest a lot of money in both graduates and training to keep their skills up, so it is a long-term commitment. Then you have to put a career structure around these people. They have got to want to stay in that sector, because these are long-term programmes and you want continuity; so they need to know how they can be promoted within the Civil Service, or the military, or wherever they are sat. It is a really long-term commitment; and I know that DE&S are looking at it, because I have personally spent time discussing the structure of how we have built up our function, and we have had joint activities going on in that area, but there will be a differential in financial rewards.
Q284 Mr Hancock: The problem is, if the MoD did that, you would end up poaching them, would you not? You would stop training them and you would poach them. It is not to your advantage, is it, really, because your edge at the moment is there is not the skill and the project management within the MoD, which allows you to take them to the cleaners time after time after time?
Mr King: That is absolutely wrong.
Q285 Mr Hancock: Are you sure?
Mr King: Absolutely and fundamentally wrong.
Q286 Mr Hancock: So why have you spent so much money engaged in buying people out of the Services when it suited you, when you needed their skills?
Mr King: Because we need those skills, because, as we have moved along providing integrated support availability contracts, we need to marry up our design capability with the operational capability to provide real cutting-edge capabilities. If you look at the benefits of the Tornado attack programme, it has taken £1.3, £1.4 billion of savings to the taxpayer.
Q287 Mr Hancock: Over and above all the other costs that it had already cost us. Over and above the original figures.
Mr King: No.
Q288 Mr Hancock: Yes, it has cost us a lot more money than we originally---
Mr King: Not true. On Tornado that is not true. We are very professional about the way that
we do these things. We do not go in and
just recruit people from the Services.
We enter into debate as to where would be the right placement of those
skills for the
Q289 Chairman: Can I come back to something that you said, Dr Wilson, that it is going to get more difficult to recruit these people. The Bernard Gray Review suggests that the problems in the acquisition field in the Ministry of Defence are bad but accelerating. So things are going to get more difficult in that respect, and putting them right is also going to get more difficult, if what you suggest about the shortage of skills in the future is right. Would you say that was an accurate summary of where we are?
Dr Wilson: Yes, I think that is a fair comment, given what Bernard Gray has said and what I have said today, in terms of the wider industrial landscape for skills.
Q290 Chairman: You accept that things are bad and getting worse - that comment in the Bernard Gray Review - do you?
Dr Wilson: I think that is hard for me to judge, frankly.
Sir Brian Burridge: There is one area where things could change. Acquisition reform over the years has had to see the MoD change its approach from a strictly writing contracts type of approach (and they had many people who were very talented at that) to a commercial approach. When you think of the way in which acquisition of both capital equipment and services has changed through PFIs, availability-based contracts, then there is a greater need for people with commercial nous, and that is an area that they are short of in the DE&S and that is potentially an area where they can actually expand, because the nature of the economy will release a number of these people on to the market. So the challenge for the MoD is to get the commercial expertise; the challenge for industry is to understand the user better, particularly, again, in these areas where acquisition has changed, and that speaks to Ian's point about needing people who really do understand what the users do with their equipment.
Q291 Chairman: That is helpful.
Mr Godden: I do not want to prolong the debate, but, just to reinforce it. I think this is one of the single biggest important features which possibly has not got enough follow-through attention or enough implementation aspects to it to make this real. As I survey the four sectors I am involved in - civil aviation, defence, civil aerospace and security - there is no doubt what Dr Wilson said, that the demands on that type of skill are increasing over time, and, with the civil nuclear coming into that equation quite dramatically, there is a real risk of a further skill drain out of the traditional defence sector, particularly because, as we look at careers - and I listen to people every day talking about their careers - they are beginning to fear that the security space and civil nuclear are much better future careers for them because it has got growth, it has got expectations of more money, it has got more research, etc, and there is therefore a belief that defence has got this risk of being stuck in a box and not going anywhere. So I think we have also got that feature, which we are dealing with. To me the programmes associated with this are critical. You may or may not know that the DoD have just hired, or are in the process of hiring, 30,000 people into procurement, as we speak, because they feel they have deskilled too far. So they themselves are trying to reach in and deal with it.
Q292 Chairman: When you said "the DoD", you are talking about the
Mr Godden: The United States DoD, I am sorry, are hiring 30,000 people in and they are paying above market rate.
Q293 Chairman: They are paying above market rate?
Mr Godden: Yes.
Q294 Chairman: Mr King says that the Ministry of Defence pays below market rate. Mr King, are you able to quantify the differential that you have referred to?
Mr King: Not here and now. I suspect it would be fairly easy to do so, but I have not got that data to hand.
Q295 Mr Jenkins: I would love to ask you about the rationale and the reason why I need, in the Ministry of Defence, a very good commercial manager to deal with a partner, but the question is more basic than that. As you may be aware - and some people will not face up to it - only a percentage of our people have the ability to acquire and develop these skills. So what are you doing as companies? Do any of you actually finance a chair at a British university to develop these types of skills and how many do you pull in to stop them drifting off into useless occupations like lawyers or accountants?
Mr King: We do a lot. You are quite right. We do have relationships with a lot of
universities in terms of sponsoring the types of skills. At any given time we have got about 1,000 in
apprentice schemes, we have got 300 in graduate schemes and we keep on turning
up that wick to make sure. We do lose a
percentage of them, but it is recognised that if they can stay within the
sector, or stay within the
Q296 Mr Jenkins: Do you all do the same?
Mr Godden: Yes. On behalf of the industry we are trying. For example, at Farnborough we are creating a futures day, the Friday, all around this subject about attracting youth into the sector and attracting the science philosophy amongst youth. Our long-term aim is to build that up into something much more significant than it is. Last year I think we had 700 or 800. These need to be thousands. We need to get thousands in here. This will not solve the problem in the next few years. It will not solve it in the context of what we have just talked about in terms of some of the skill bases in the MoD, but it will start feeding the hopper for five, ten years down the road.
Q297 Chairman: Still on the analysis contained in the Bernard Gray report, would you say - from the sound of things you probably would - that this was the most important issue contained within the Bernard Gray Review: the absence of skills within the Ministry of Defence?
Sir Brian Burridge: There are two fundamental issues. One we touched on at the outset, the fact that the programme and the resources are out of balance and that generates particular behaviours, but, certainly, in parallel with that is the depth of skill in programme management and in commercial management.
Q298 Mr Hancock: Is it possible to bring those two things closer together?
Sir Brian Burridge: One assumes that it would be possible. One would have to defer to the Treasury to know what is in the art of the possible, but, yes, in theory, as a standard piece of business practice, that is what you would seek to converge.
Q299 Mr Hancock: He did not come up with any real suggestions of how that could be achieved, though, did he?
Mr Godden: That was my comment about implementation.
Q300 Mr Hancock: Could I, first of all, start with two general questions. As individuals, were you personally interviewed or consulted by Bernard Gray separately, and what was your view of the process that he went through? It would be interesting to hear if there is a different view on that. What was industry's view generally of the consultation and the efforts that were put in to try and make this as potent a document as he could?
Sir Brian Burridge: I was certainly consulted ---
Q301 Mr Hancock: In a one-to-one capacity?
Sir Brian Burridge: ---individually, by Bernard and his team. We went over aspects such as through-life capability management in-depth, strategic partnering arrangements. You will recall that the first strategic partnering arrangement was with AugustaWestland post the Defence Industrial Strategy. What were our views on that? The business of man-marking, which was high on his list, and the depth of commercial and programme management skills, and, from my knowledge and my company's collective knowledge, we recognised that this was a suitably incisive methodology; it would recognise where problems lay. We perhaps thought that it may not come up with anything absolutely brand new, but it would not in any way undermine it for the telling. That said, it is a tough world in the public sector when you are dealing in an environment of constant financial squeeze; so one is always slightly reticent of continuing to beat up on the DE&S in that respect. There are some things over which they have no control, and the budget is one of them, but as a methodology, absolutely no qualms.
Mr Godden: I would reinforce that. I was interviewed one-to-one twice and then had a discussion towards the tail end, so he consulted very effectively, and, in my opinion, it was a thorough process, a thorough analytic background and a set of interviews that was quite wide. Secondly, he did present and discuss openly at the NDIC meetings and he was quite comfortable with anybody calling him from DIC (Defence Industrial Council). From that point of view, the consultation was very strong and the implications from it were well discussed. It was very open. It was behind private doors, obviously, but it was a very open discussion about the implications and the nature of the problem. The implementation issues possibly could have required some further effort and time, but I think that was not necessarily timeliness on his part, that was the timeliness to get the report to a certain condition.
Dr Wilson: I also had a one-to-one session with Bernard Gray. I did not major really on the source of the problems, because a lot of that, I think, was pretty obviously taken as read at the start of it, and concentrated more on where the solutions might lie. However, we did comment on the commercial process within MoD, the fact that there are certain aspects of that that were somewhat more routine that could be streamlined and our disappointment that that had not yet happened, and suggested that that might be a way forward, but then focused primarily on the so-called 80% solutions, the speed aspects, the risk aspects, and we gave him a short paper on the differences, as we saw it, between the standard equipment programme and the UORs and how the two could perhaps be brought closer together in some new hybrid procurement system. So we focused very much more, I think, on potential solutions given that things had to change, get faster and cheaper and with less risk.
Mr King: I had a one-on-one with Bernard on this subject, and then we also agreed, as part of that process, what other access he should have to the various people in BAE Systems who were either involved in partnering or in other programmes. So we gave him free access to everything he wanted.
Q302 Mr Hancock: What do you think he missed?
Mr King: I personally think it is a fairly comprehensive report, to be honest with you.
Q303 Mr Hancock: Industry is well pleased, are they?
Mr King: I think we recognise it is a comprehensive report which addresses the key issues that have to be dealt with.
Q304 Mr Hancock: So industry is well pleased?
Mr King: I am not sure that the term "well pleased" is founded.
Mr Godden: I do not think that reflects the sentiment in industry, as I read it anyway. It is pleased that it is out in the open - some of these issues that have been raised and developed - and I think there is a big debate about how to achieve this, and there is a slight fear in industry that it will be a document that will live as a document and will not have the sharp implementation associated with it. If you ask, "What does it miss?" perhaps it misses the people, leadership and implementation issues in addressing how this is going to become, not a change programme, but a reform programme, and that is, I think, the worry.
Q305 Mr Hancock: Which is very different.
Mr Godden: Which is very different. A change programme is one thing; a reform programme is another thing. That is my personal worry about it, that it becomes another change programme and it does not deal properly with the skills issue and the reform required to make decisions much, much faster, etc. So if there is a fear, the word "pleased" is not the right word to use for the industry. It is pleased that it is out in the open but it fears it being a wonderful report on the shelf.
Q306 Mr Holloway: Does the MoD sometimes make it more burdensome for
industry? For example, I cannot remember
whether it was the Defence Committee or the Armed Forces Parliamentary
Committee, but going down to Westland the engineers there were fitting rifle
racks for the SA80s on some helicopters, some Merlins coming from Denmark or
somewhere. There were two
Sir Brian Burridge: Clearly these things can happen, but, in terms of the way AugustaWestland at Yeovil run, and you probably will have seen it, there is a combined IPT. There are 200 MoD people integrated into the design, engineering and quality staff within the factory and, frankly, when it comes to dealing with either something like the Future Lynx programme and things like the integrated operational support for Merlin, they are pretty seamless - it is one of the success areas - but let us be under no illusion, design authority, the safety case, particularly when you are doing modifications at speed, as you are in UOR processes, does need to be properly audited.
Q307 Mr Holloway: Having tens of thousands of people working for the MoD whose job is precisely that, do you think sometimes it goes over the top?
Sir Brian Burridge: No. This is interesting in the Gray report in leading to the conclusion of a government-owned contractor-operated acquisition organisation. What I would say is that the nature of the skills required, the number of people that can be afforded in DE&S means that the interface between the core of DE&S as an intelligent decider, the interface with industry, is inexorably moving towards the centre of DE&S. Complex programmes these days are likely to require alliances, and so one large company will have to manage the gorillas represented by the other parties in the alliance. So the degree to which you need what was the rather old-fashioned way of scrutinising every turn of the spanner has gone.
Q308 Mr Hancock: Do you accept that industry itself has to have more realistic cost estimates in the early stages of programme development, and how could this be best achieved?
Mr King: I am sorry?
Q309 Mr Hancock: Do you accept that you, as the industry, need to produce more realistic cost estimates at the early stages of programme development, which would enable things to be much more fair? We always seem to be blaming the MoD for cost over-runs. They seem to accept responsibility for everything and industry looks blameless, except they are the ones who have charged more and taken longer.
Mr King: There are two comments I would make to that. One is that sometimes in the early stages of contracts we reach for a commercial structure and a price far too early, rather than defining what is the solution you are trying to provide, so it tends to lead to extreme statements of requirements and not necessarily defining which party is best able to handle the risk. You tend to find that in the first stage of estimates it is very open-ended, all the risk largely sits with industry, which tends to inflate what you put in terms of the cost because that is the only option that you have to do. You would be much better down-selecting somebody based on the requirements and capabilities they have in the early stages rather than running a beauty parade with a big cost attached to it, because it is very open-ended, and then working with that party and really honing down to what is an acceptable cost against an acceptable risk and capability profile.
Sir Brian Burridge: Some reassurance. The NDIC is working in partnership with the MoD to look at project initiation and really examine what it is you need certainty on before you proceed, because, as Bernard points out, a number of programmes have launched into life carrying really quite high risk which, had some attention been paid at the earlier stages (which was actually one of the pillars of smart acquisition) that could have been avoided. I think the key thing in any of these things is to consult industry early so as not to close off options or refine the requirement to the extent that it does impose additional risk and additional cost. If there was a more collaborative approach to these big capability programmes early on with industry so that everybody is on the same page with regard to the complexity and the cost and time aspects, then that would be a step forward, and it is beginning to happen.
Mr Hancock: But going right back to the initial statement about willingness to change and to bring in smart procurement, seven or eight years have elapsed since secretaries of state were making those statements, and yet there is still this abject failure to achieve what you said was the key pillar - it was the only pillar really - of smart procurement.
Chairman: We are just about to get on to that.
Q310 Mr Hancock: It is Sir Brian's point there about why this has not happened.
Sir Brian Burridge: I can give a very short answer. What has made it more difficult has been significant reorganisation along that time period. The three single Service commands into the DLO was the starting point - the DLO into the DE&S, the way in which the central customer was created here - so organisational change. The other absolutely consistent factor has been a budget which is insufficient to meet the aspirations, and that really does influence behaviour.
Mr Hancock: What is your view on the spiral option?
Q311 Chairman: Before we get on to that, Mr Godden, you said you did not believe in this conspiracy of optimism notion. Why not?
Mr Godden: It is the language which I think is not quite right. It gives the feeling that it is over specification and under budgeting that is at the heart of this. The budget issues are clear, which we have just said, but it is the shifting requirements and the indecision around what the real requirements are and the changes to that.
Q312 Chairman: What Mr Gray says on page 29 is, "Under current governance, while underestimating the cost of a programme can lead to criticism and delay in the delivery of the required equipment, it is highly unlikely to lead to forfeiture of the desired equipment. As a result, the Forces have an incentive to bid for as many equipments at as high a specification as they can. They also have an incentive to underestimate the cost of delivering this system." Do you think that is wrong?
Mr Godden: No, it is not wrong, but it is incomplete in its view.
Q313 Chairman: Do not worry; there is plenty more.
Mr Godden: I think, just going back, it is the constantly shifting requirements as well. That is the point I am making.
Q314 Chairman: So it is additional.
Mr Godden: It is not just that there is optimism from the beginning. It is a requirement in order to get the budgets through.
Q315 Mr Hancock: But it is a one-sided argument, is it not? Once again, all the blame falls on the MoD. They constantly change the requirement, but then, in some cases, industry has not been able to produce what they originally set out to claim to produce. The MoD have had to compromise because industry has been unable to produce what they set out for. So we have to be a bit equal.
Mr King: Absolutely.
Mr Godden: That is understood.
Mr Hancock: But Gray does not recognise that.
Chairman: Do you think that is fair?
Mr Hancock: I do not think he recognises the fact that industry sometimes cannot deliver what they say they can. He does not mention it at all.
Q316 Chairman: We can ask him about that when he comes in front of us.
Mr Godden: I had not noticed he had not mentioned it, so you are pointing out something new, but the idea that a complex engineering project of the nature that we have got can always be on time and on budget because the risks are fully understood, etc - the risk pattern is a double risk and there is no doubt - and you see it in the scientific area - you are not able to predict, so there is an element by which industry will from time to time not have the right answers from the beginning. Absolutely. That is a feature of the risk sharing that was talked about earlier by Mr King. That risk sharing needs to be agreed at the beginning or very well understood, otherwise we do get into a "blame the other" culture, which is very unhelpful.
Q317 Mr Hancock: Were any of you party to the suggestions that were being made in the report that certain elements in industry were favouring the spiral approach to development? What do you really see as the advantages and can it really, actually, once again, be delivered? It sounds good, but is it a deliverable option?
Dr Wilson: Could I start on that. I am definitely a proponent of the idea of incremental procurement and spiral development. You asked a question earlier which I was going to at some point try and give an answer to. It was going to be asked as a question. If you went and asked the Army what they thought of the aspirations which had led to them not having a protected manoeuvre capability after nearly 20 years of programmes, perhaps they would suggest that they would be happy to have accepted an 80% solution, which was your question. In fact, one of my colleagues has had a conversation with a senior person within the Army, who says, "Yes, we might well have been better to do that", because they would have had something, they would have had that early capability delivered and then see mechanisms for incrementing it as the requirement changed. That is my very simple view of why an early delivery of an initial capability will go down very well with the Armed Forces in certain areas. I am not sure you can do this across all platforms or across all technologies, but I think it is fundamentally doable in quite a number of areas - armoured vehicles is one, communication systems is certainly another - and in those cases you can see ways in which incrementalism can help you. You have to take a technology view of this as well, because such things as computers, radios and other pieces of complex electronic equipment tend to get smaller and more compact and more readily adaptable to platforms over time and, therefore, there is no point buying 15,000 of them at day one when you need maybe 3,000 for the next few years and you can incrementally buy those at a constantly upgraded capability. So I think there is a lot to be said for incremental procurement and spiral development.
Q318 Mr Hancock: Is it deliverable?
Dr Wilson: Yes, of course it is deliverable. We are currently doing that on the bombing programme.
Q319 Mr Hancock: Go back, Sir Brian, to when you were in a leading role. Would you have been happy with that arrangement?
Sir Brian Burridge: Yes. I should place on the record, I have never worked in acquisition, I have always been an operational person, but it gives you certainty of removing the previous capability, of the training programmes you need, the infrastructure investment you have to make. There is nothing worse than running on a fleet that you were not expecting to have to run on. If I use the example of fast jet aeroplanes, in the life of an aircraft like Typhoon, JSF, we are not going to change the engine airframe combination. These are now so integral that you will not see the progression that we saw, say, with the Spitfire or even the Harrier - totally different aircraft between the GR1 Harrier and the GR9. Capability in this era comes from software, sensors and systems. These are at the heart of capability, and all platforms ultimately will arrive at a point, perhaps somewhere around 2050, when that is true. Armoured vehicles, which at the moment are relatively unsophisticated, have more and more sophisticated architectures, more integration, use electronics in a much more sophisticated way. If capability is coming in that way and the electronics, as you have heard, over the lifetime of a platform inevitably has obsolescence about it, you have to solve the obsolescence, and you can do that at the same time as you increase capability: faster integrated circuits, etc, etc. If you lay that on to an availability contract, you can do that as part of the regular maintenance of the platform rather than have these huge return to works programmes where, as a front-line commander, you are denuded of your capability in sheer numbers and, as a matter of cost, it is a relatively inefficient way of doing it. So it is already happening with fast jet aeroplanes and it has the potential, as all types of platforms move through that sophistication curve, to be the way it is always going to be.
Q320 Mr Hancock: Do you think it is acceptable to sell that idea of starting with an 80% capability to the wider public, to the media, who would say, "Here you are. Industry is saying do not go for the 100% solution: take 80%. It gets into the field quicker, it offers most of what you want, but it is still 20% down on it." Is it a saleable thing? It would appear that officers in the MoD are up for it, industry is up for it; but politicians have to be up for it because, at the end of the day, they carry the can if it goes wrong. So how do you sell it?
Sir Brian Burridge: Well, do not use the term 80%. The label is wrong.
Q321 Mr Hancock: Or whatever. Less than full capability.
Sir Brian Burridge: The reason I say do not use the 80% label: what is the 80% solution on body armour? There are some things in some places that do not lend themselves, but if you have to use your newly introduced equipment very rapidly on operations, then you have to go the UOR route, you have to accept that you will invest in a small number, and most front-line commanders hate the idea of fleets within fleets, but that is exactly the way it would have to go. I think the general public have become almost immune to the annual slaughter of the equipment programme by the National Audit Office - this number of months late since last year, this amount of money extra - and the numbers are so large, but I think that it would be widely acceptable and ministers ought to be able to say, "Look, this is us managing risk properly."
Linda Gilroy: I am trying to relate what you are saying to a couple of circumstances. You have talked quite a lot about airframes, but I am thinking about FRES and, with the wisdom of hindsight, I am also thinking about what I saw when I went out with the Armed Forces Parliamentary Scheme to Camp Bastion last year in the way of new vehicles: quite a big range of vehicles being produced for the convoys and also, of course, the Jackal as an urgent operational requirement and, I believe, a forthcoming replacement for the Snatch Land Rover similarly being procured and something which, I think, our Armed Service personnel would have welcomed some time ago. What I am thinking is, what are the lessons of what Gray is putting forward and what we are talking about in terms of procuring, perhaps, for a basic building block capability into which you can update and put in spiral insertion? The other programme that I am thinking of is, with the wisdom of hindsight and realising some of the things that Gray is now saying, what would the lessons have also been for not just the procurement of the carriers and the Type-45s but looking forward as well to what has been known as the Future Surface Combatant, now the Future Frigate, I think, is what we are calling it, and can we get that one in the right place? I am sorry that is a fairly complicated set of scenarios, but if somebody could take the vehicles one first and then maybe the lessons learned on procuring naval equipment.
Q322 Chairman: Dr Wilson, do you want to talk about FRES?
Dr Wilson: Yes, surely. I think if FRES had been procured earlier
with either the specification that existed or some lesser specification, then
it would have been perfectly possible to get into service a protected manoeuvre
vehicle that would have given the Army all of the capability that it currently
needs in
Mr Godden: Can I just add one thing which we have not mentioned, which is the export market, because it has an impact. It has had and would have had a big impact on the exportability of many of the pieces of equipment that we have produced over time, and so there is an extra economic incentive which feeds back on itself with the potential for spiralling to become an economic benefit. s well as the reduction in the early stage it also feeds off itself and creates the economics for the upgrades that might be required. So the thing feeds well in that sense as well.
Chairman: Do you want to answer the rest of the points?
Q323 Linda Gilroy: Can I just say in relation to what you have seen with the Type-45 and the increase in the cost for the Type-45, when I went to the defence exhibition earlier this year - the major one - what I saw there as a Future Frigate seemed to be replicating, again, going for (never mind the 100%) 110%, 120%, rather than looking at the basic hull that could be designed to cross all two or three types of Future Frigate and then to build from that.
Mr King: It still is called the Future Surface Combatant.
Q324 Linda Gilroy: Is it? That is a shame!
Mr King: One of the key issues on this programme is that they have to build in flexibility and modularity of the design so that it can be exported, because there is no doubt that unless you have a less complex ship, you are not going to export it à la Type-45, and that is a key part of the "Initial Gate" proposal that is in the moment, which is to start the thinking and ensure from day one that the programme is structured in that way and we do not get too late and too long in the process before it becomes an over-complex set of capabilities. So those lessons are being learnt and it is a key part of the terms of the business agreement that we have signed up with Surface Fleet in terms of the 15-year partnering agreement which looks at the types of skills, in terms of protection of design skills, making sure it is modular and it is flexible both for export markets and home markets.
Q325 Linda Gilroy: So the commentators who say that what is being attempted is a substitute for not getting enough of the Type-45s and that these are a Type-45 variant rather than a different support vessel are wrong, are they?
Mr King: Yes. The Type-45 is completely different. This is about the replacement of the Type-23 capability and that type of frigate capability rather than the Type-45, which replaces the Type-42s.
Linda Gilroy: So the commentators are wrong when they say that?
Q326 Chairman: I think you said, "Yes."
Mr King: Yes, I think I would say "Yes" in terms of the structure of the programme.
Q327 Mr Borrow: I am trying to come back to basics in a way, because I sense that there is something about defence procurement where you come up with an idea of what you need, which is way different from what you have already got, and then you try to specify it, de-risk it, usually unsuccessfully, and then you are surprised when it takes longer than you expected to build it and it costs more than you anticipated. I am not sure whether that is peculiar to defence. Certainly I can think of two major civil aviation projects where they have come up with something very different from what is already flying and then been somewhat surprised when it has taken rather longer.
Mr King: It is nearly destroying their companies at the moment.
Q328 Mr Borrow: I think outside defence it does not happen very often that you have a product that is costing a huge amount of money to design and launch and when you do it tends to take longer and be more expensive.
Sir Brian Burridge: The level of complexity in defence systems across the world is an order of magnitude different than that in most civil systems, so there is bound to be more technological risk. The factor on cost is that the production runs are necessarily shorter. Marrying those two things together, the non-recurring expenditure on a programme which is at the top end of technology on short production runs means that its unit cost is going to be high, and certainly in the civil aviation industry Boeing and Airbus, of course, look for hugely long production runs in order to sweat that cost over a large number of aircraft.
Mr King: I would not want you to believe that there are other engineering sectors which have not gone through the same types of issues that defence has gone through. There are a number of examples, particularly in oil and gas, where they have changed the nature of the contracting structures on major platforms because they nearly destroyed the supply chain of trying to pass fixed-price risk for something that was going through a very highly engineered phase and they have gone to more partnering type structures to manage those things, but, I think, if you implemented incremental acquisition properly so that you do get an initial operating capability, because the definition of what operationally they want will change over time and probably at a speed which is much more rapid than previously, then you can upgrade those platforms and those systems over time rather than trying to define the 25-year picture at day one that will push risk into the programme, it will push complex contracting structures and costs into the programme; and those are the things that we cannot face, either as an industry or the MoD, going forward.
Q329 Mr Borrow: But the MoD therefore needs also to have some recognition of the capabilities of industry?
Mr King: Absolutely.
Q330 Mr Borrow: The classic example is nuclear-powered submarines.
Mr King: Absolutely right.
Q331 Mr Borrow: You cannot simply decide, "In ten years' time we will have a load of these submarines", if you have not allowed industry to keep the capability to produce them.
Mr King: Yes. If you look at the Astute class submarine,
this is the first time for 15 years that we have commissioned a new first of
class nuclear submarine in the
Sir Brian Burridge: That speaks to my point about consulting industry early. If I may make a very quick related point, the ability to do spiral development does depend on the nation's ability to maintain the skill base in its engineering industry. In other words, just doing support availability contracts on a support basis does not necessarily preserve the highly skilled aspects of systems engineering, of design engineering and of development engineering. These are very important aspects in being able to do spiral development.
Q332 Chairman: Can I come on to a different issue, namely, the possibility of having this whole process dealt with by a Government Owned-Contractor Operated process? Bernard Gray says that "it is the contention of the review team that any change needs to be system-wide and significant because trialling or small-scale experimentation risks being strangled by the significant forces working to maintain the status quo". That rings true, does it not?
Mr Godden: The statement I made earlier about this being a reform rather than a change I think is very important. It is in the context of saying that if we are going through another change programme without radical change of skill base, etc, then you would say you are looking for a mechanism to get that electric shock through the system.
Q333 Chairman: An electric shock?
Mr Godden: But it is not industry's view, although there are different opinions, I guess, that a Go-Co is the right answer, because I think it is a view that says that that is a great conceptual example of getting the shock tactic but it is not very practical. For practical reasons I think industry feels that this is a very complex area, as Sir Brian Burridge mentioned. Therefore, it is not that easy, it is not that simple, to just talk in simplistic terms.
Q334 Chairman: Do you think this electric shock might kill the patient?
Mr King: Yes.
Mr Godden: Yes is the answer. I think that is the consensus.
Mr King: In simple terms, yes.
Q335 Chairman: Bernard Jenkin asks who is the patient. I think we all are. Mr King, why is that industry's view?
Mr King: There is distinct domain knowledge and I think the debate has taken us in quite a number of aspects around the specific domain knowledge of this. There are a couple of examples where this has been tried in the early days of FRES, in the early days of the carrier, of putting somebody between the MoD and the rest of industry, and both of those constructs were taken apart because they do not really work. If we are talking about some Go-Co, so you are talking about this fantastic organisation that has got all these commercial, these programme management, these finance skills as specialist to the area, all of which we debated earlier and which are in short supply, where is this going to come from? What benefit are we going to have from putting somebody between industry and the MoD when, if you look at the real things which are showing progress, the real things which are showing value, these availability contracts, these partnering structures, if we think of how the munitions programme is now structured, the terms of business around naval, that is the way forward rather than putting some artificial interface in the way.
Q336 Mr Jenkin: This is all a bit grim, really.
Mr King: It is the life we live.
Q337 Mr Jenkin: I was struck by the electric shock comment because I think you are the patient that has suffered the electric shock and you are suffering the prospect of the axe falling on various programmes as reality dawns on the public sector generally. I just wonder what you can say at this committee meeting that is really going to be much use to us generally because we are in this sort of limbo land now waiting for the Defence Review, waiting to see what changes to the procurement process are made.
Sir Brian Burridge: What is our light at the end of the tunnel?
Q338 Mr Jenkin: It is all a bit paralysing, is it not?
Sir Brian Burridge: It would be to our advantage and to the advantage of the nation if we were to emerge from this tunnel with a sustainable, affordable force structure where in each sector it was known and understood where technology was going to take us in terms of capability and where the Government wanted to set its limits. I think that as a statement underpins the difference with where we are now with a programme and resources so hopelessly out of balance that they are just constraining both parties' ability to act rationally.
Q339 Mr Jenkin: Chairman, I should just draw attention to the entry in the Register of Members' Interests concerning a charitable event that was supported by a defence contractor. I think it is worse for you than that because is not the Bernard Gray report rumbling the industry? A lot of people think that the procurement process for the defence industries has been - and it is not necessarily my view - a bit of a racket and the party is coming to an end? Why is that an unfair charge?
Mr King: I do not necessarily think it is an unfair charge. There is no doubt about the uncertainty that exists as we head inexorably towards the Strategic Defence Review and the rhetoric that gets pushed around the Bernard Gray report is challenging every programme, so if you look at our shareholder face, those people who invest in us, who put support in this, yes, they are questioning where is the UK going. If you then come back to one of the key issues which says that we have to retain skills, so there is going to be a set of operational requirements and a set of needs to be provided, it does not help us in recruiting people, in sustaining people in this industry, if there is that amount of uncertainty out there, which is why, when I was asked to comment at first, I said that the important thing is that we go through a very logical, valuable process of the UK deciding what its foreign and security policy is, which leads to a Strategic Defence Review. If you have to go back round the route because it could be unaffordable, then at least you have come up with a policy, which leads to a Defence Industrial Strategy, and then we in industry can align our resources and capabilities around that DIS. That is what our shareholders want, that is what our employees want, and I think that is what the Armed Forces want, because they need to know where this capability is going to come from.
Q340 Mr Jenkin: I think that answers one of my questions, which is why have not previous reforms of the procurement process worked, and we were talking about that earlier, and it is basically because there was still far too much uncertainty.
Mr King: There is a lot of uncertainty and, as Ian Godden said, one of the issues is, do people believe it can be implemented?
Q341 Chairman: Mr Godden?
Mr Godden: I was just going to add that it is the implementation issue that I think is the fear. You could say that if there was political will at this stage the Bernard Gray type reforms or equivalent could be done out of sync, as it were, with an SDR because it is an implementation operational matter, and in one sense there is a fear that we have that the next Strategic Defence Review and Defence Industrial Strategy will simply focus on procurement reform and not deal with the other very important strategic matters about capability, operational sovereignty and the need for an industrial base, and that this becomes the focal point and wrongly so. It is a feature of an organisational and implementation aspect which we need to get on with and it will be hijacked by the pressures on the budget as a consequence of that, unfortunately, but it is not the biggest signal in terms of industry worrying about the uncertainty, about the future. That comes in things like the technology, which I know we have talked about before, and research and development comes into it, the programme decisions and the decisions about what is the nature of what we are trying to fight, which is SDR territory.
Q342 Mr Havard: The question is about the Go-Co, but the truth of the matter is that there is not going to be a Go-Co; there is going to be a strategy for acquisition reform announced in the new year which will say there is going to be a trading fund, because Bernard Gray says, "At the minimum you should have a trading fund", and, when he looks at the Go-Co versus the trading fund, basically they have the same virtues. The only argument he makes is that one would be a slower rate of change in terms of commercial thinking, skills, best practices and so on, vis-à-vis the other, so that is the background reality, is it not, and is it not the case, if that happens, that the fear you have just expressed is taken care of, because this change to a trading fund and taking account of these things that he lists will be done in the new year in any event before a Strategic Defence Review? Is that right?
Mr Godden: If you read the tea leaves, which I sometimes try to do, then you might say yes, but I do not know for a fact what is going to happen in the new year.
Q343 Mr Havard: The Secretary of State has made all sorts of statements about having a review. I do not know whether you have been involved in the discussions about such a review, because it is supposed to take place in the early new year, but clearly he has rejected the Go-Co idea, he has accepted the trading fund, so that is the objective reality against which you plan, is it not?
Sir Brian Burridge: It is, but that is not a quick outcome. It will take a long time to create a trading fund out of the structure that they have already, and it does provide the one advantage, necessity even, that a Go-Co does not. Under a Go-Co structure I was hard pressed to understand how, say, the Permanent Under Secretary as the Accounting Officer would exercise his accountability because so much of decision-making would potentially be outside his purview and I think he would have a very difficult time justifying a programme, say, in ten years' time that was run under a Go-Co arrangement. That is my suspicion.
Q344 Mr Jenkin: Despite all the reforms that the MoD has made and may be attempting to make, what has industry done that has worked, that has improved the procurement process?
Sir Brian Burridge: I think that on availability contracting in particular industry has done an enormous amount and I was on the other side of the fence in creating the Tornado programme. My colleague was the person I was talking to.
Mr King: He was my customer; nice chap.
Sir Brian Burridge: And we both had to move a long way in terms of our aspirations and develop much better our understanding of who was best placed to manage risk. It was not straightforward. It took about 18 months longer than I expected but it broke the mould and it is that mould which pretty much applies now to helicopters in terms of integrated operational support. I think industry has done a lot in that respect, programme management too. The future Lynx was the first post-DIS contract with very long time lags or time distances between milestone payments but very significant milestones, and that was a completely different way of creating a contract.
Q345 Mr Jenkin: We do appreciate that. We have in fact looked at the Finmeccanica example as an exemplar of this. I am most struck by the comment raised earlier about the lack of people with the relevant skills. Is that not something the industry should be doing? Should there be a new institute for defence acquisition management? Should we be developing a new college to train the people that are required on both sides of the divide in order to bring forward the volume of people that we need to do this?
Mr King: We do have joint training schemes. We have accredited our programme managers, we have accredited our commercial managers, recognising this, and we do offer these schemes both to the MoD and to industry.
Sir Brian Burridge: Following the creation of the Defence Academy and real focus on acquisition skills, I think it has moved a long way since the days when it was the Royal Military College of Science focusing purely on weapon technology. I think there is some very good management training available. No doubt it is proving difficult for the MoD to release people. We release people and it is difficult for us as well but you have to make that investment.
Q346 Mr Jenkin: Do we require a step change in the effort here?
Mr King: Yes.
Sir Brian Burridge: Yes.
Mr Godden: I believe we do. I would say that there was one other programme we have started to implement which needs a step change as well, which is the SC21, the Supply Chain 21 programme, to make the whole supply chain of the 3,000 companies that are in this game much more efficient.
Q347 Chairman: Was that not something that was going to be addressed in the Defence Industrial Strategy 2?
Mr Godden: It has started and it is early days, I would say. In civil programmes it has been implemented faster, I would say, but on the defence side that started about a year ago. I think it has got another three or four years to run before you would claim it is going to get significant implementation. It is implementation that is the issue, not concept. We have got the concept, we are applying it and we are seeking (which Baroness Taylor signed up to at Farnborough last year) commitment from the MoD to the programme. We have got 550 signatures out of 3,000. It is not the signatories that count; it is the ability to get on with it. That is a programme that is ambitious but needs a step up in terms of real, concrete results.
Q348 Mr Hancock: Can I just ask you to clarify that, 500 out of 3,000? You say it is not significant, the signatures; it is the attitude, I suppose, you are talking about. Why were so few then interested in signing up physically for something like that? Are they worried about something we have not been told about?
Mr Godden: No. It is the smaller companies, the £1 million
to £5 million companies that believe this is another example of bureaucracy
coming from not
Mr King: As part of the revised
structures that have been put in place by the MoD with the Finmeccanicas, the
GDs and ourselves in these partnering arrangements, we ourselves have had to
learn the skills of how we partner with the rest of the supply chain, and from
the SMEs, quite rightly so on their part, there would be slight antipathy at
the start in trying to determine whether we were in this for the long run and
encouraging them and developing new structures and new skills. I think we are making good progress but we do
need to recognise that the
Q349 Mr Havard: There are a number of reasons why I asked the question earlier, and I noticed I did not get an answer to it, one of which is whether or not you would be involved in the discussion about the strategy that is going to be published in the new year, not the least of which is this question about SMEs, which has been an issue that has been running for years, about how they see themselves coming into the process and how they can be involved in the discussion. What discussion is taking place about SMEs and larger companies being involved in that new Acquisition Reform Strategy that is just about to be announced but which seems to be a mystery?
Dr Wilson: If I can make a comment, there has been an ongoing dialogue before we get to this point of producing a paper or a strategy at the start of next year about how SMEs should be engaged. That has been quite a long dialogue with the DMA as it was and is now continued by ADS, and with companies, and I will give you one example of that. When we deal with small technology companies which come up with very good ideas they find it extremely difficult to survive in the defence environment until their ideas can find some traction. My company has set up an R&D technology pull-through mechanism which we have published widely around the MoD, which has quite a lot of intellectual attraction for the people in the S&T community and more widely and probably forms the basis of some mechanism that could be used by MoD and more widely by industry to pull technology through so that SMEs are not left in this valley of death with great ideas that cannot be exploited, so that does not answer your question either.
Q350 Mr Havard: It might do but is it one of the things that is in the review?
Dr Wilson: It certainly has been a view that has been put forward to the MoD on countless occasions and I think it has now got some traction.
Sir Brian Burridge: In inputting to the Green Paper we certainly put forward some views on acquisition reform, particularly the strategic management of R&D, the importance of a pragmatic approach to TLCM, and these are now what will appear, I am told, as challenges in the strategy for acquisition reform which will be published in parallel with the Green Paper. Separately, as the DIC, we have been asked to put forward three or four people to assist the authors with producing their document.
Q351 Chairman: I am not sure that that is very reassuring because I had the impression that when the Defence Industrial Strategy was produced there were constant discussions between the Minister and industry, and industry, so far as I could see, thought it was a perfect example of clarity and involvement. I am not getting the impression, partly from yourselves -----
Sir Brian Burridge: I would not want necessarily to speak for the MoD but I do not think that this will necessarily be a hugely detailed document. It is not like the Defence Industrial Strategy. I absolutely agree with you. The second version of DIS that follows this we would expect, and I have no reason to doubt, to be deeply engaged in.
Mr Godden: There are small initiatives, I would say, and I will use the phrase "small initiatives", to consult on various aspects of what you have described. It is a very short time frame and it is not a process that looks like either the DIS process or equivalent in terms of a full consultation over a period of time that we can collectively work through the issues on. There is debate, there is dialogue, but it is of the nature that Sir Brian mentioned, not some big formal process of engagement.
Q352 Mr Havard: So it does not clear your fear that in fact the other things will not be strategic in a proper sense but will collapse into a whole detailed argument about procurement and acquisition, so the acquisition issues will not be resolved in description before we have the Strategic Defence Review?
Mr Godden: It depends, I think, on the follow-through from January.
Q353 Mr Havard: Is DIS more important in doing that than the strategy review that has been announced?
Sir Brian Burridge: The DIS serves us in a different way.
Mr Godden: Yes, it is a different thing.
Sir Brian Burridge: And we, as we have emphasised, need to understand the customers' requirements in the sectors in which we operate.
Q354 Mr Havard: So in terms of this argument that it is about implementation, which I tend to sympathise with, the real argument is that the real working active document that you require that probably the acquisition process would benefit from is a new Defence Industrial Strategy in some detail now before you have the defence ---?
Sir Brian Burridge: No.
Q355 Mr Havard: What is wrong with that?
Mr King: We are concerned that the Green Paper will be done in the absence of looking at what the industry provides as part of the Defence Review, but we do see that as just an input into an overall SDR, and then, as part of the SDR, once it has been struck as to what the requirements are we would like a full and complete DIS done as to what the industry's position should be in supporting the SDR.
Sir Brian Burridge: The common thread in almost everything we have said this morning is the lack of balance between the programme and the budget. The most sophisticated way to bring that back into balance is to conduct a policy-led defence and security review, cost it and ask yourself whether that is affordable. If not, change your policy until it is affordable. Otherwise, we do not get, and nor does the customer, a sustainable view on where we are headed. As I think I said earlier, what we look for is a force structure which is both affordable and sustainable with a common understanding in each of these sectors of where it is the MoD wants to go.
Chairman: I want to move on to David Hamilton.
Q356 Mr Hamilton: Chairman, there is just one part strikes me and it was Dr Sandy Wilson, I think, that answered it, and that is about the SMEs. The SMEs were extremely critical, not of the MoD but of yourselves because what they were finding when we did the report the last time was that they were being asked to take all the risk of design and so on and when they were getting selected one would be selected out of five and they were carrying the burden. I understand from your comments that that has somewhat changed and, in terms of the partnership question that Ian King indicated earlier, there is much more partnership taking place now.
Mr King: Yes.
Mr Hamilton: My problem is this. At the very beginning of the discussion in the evidence session we talked about, and Dai has touched on it, clarity of purpose. If we get the clarity then we can deal with the issue. The problem I find is that you never bite the hand that feeds you. None of you is biting the hand that feeds you, and I understand that, but we have got to try and work our way through that. My problem is that we have not got the clarity even though the strategic review is there. Is it BERR now they call it? It used to be DTI. They are now making it quite clear that we should diversify away from finance and build up our manufacturing base. If we have got a department that is saying this then why can we not get together and sit down and work out a strategy? I know it is very simplistic but I think the easiest way forward is a straightforward way of doing things, but you cannot do that if you are continually moving from bit to bit where we say we do have a manufacturing base and we want to maintain that manufacturing base, as we did with shipbuilding, and then the next thing we do is give contracts out to foreign countries where we do not have a ---
Chairman: So the question is?
Q357 Mr Hamilton: The question is: are the SMEs getting a fair deal? Are you getting a fair deal? It is about time you started to argue your corner rather than being diplomatic. I tell you, it is like sitting with a bunch of parliamentarians.
Dr Wilson: Just one comment on that. The engagement with BIS is now much greater than it has been in the past. In fact, Ian Godden and I were talking with Lord Drayson just the other week about, amongst other things, the skills issue that we mentioned earlier and some ideas that might accelerate the focus of the education system on producing those skills. There are many interesting issues being debated, all of which are there to sustain this really quite significant part of the manufacturing base of the country.
Mr Godden: As the person who often gets his hand bitten off ---
Q358 Mr Hamilton: I notice it is the Scots by the way!
Mr Godden: --- and has put the case forward, there are two features of it. One is the economic impact of the defence sector on the wider economy, industrial activism, manufacturing technology, et cetera, and that is one that we have believed very strongly in and believe there is further work to be done. Progress is being made in terms of making sure the BIS type Innovation and Skills Department is fully aware of what is happening in what has historically been a narrower Defence Industrial Strategy which has been within its own vertical and the wider impact on the economy. Secondly, the recognition of the SME community, which is growing, and I think we were the first to point out 3,000 companies in the UK is more than France, Germany and Italy SMEs added together. We are promoting the interests of the SME community in large measure. In terms of the individual relationships between large companies, medium-sized and small companies, and I would differentiate between those three, not just two, it is up to the individual companies how they conduct their business, but we see that dialogue taking place quite actively in a way that before has been a little bit split apart. That debate is happening and that discussion is taking place. Civil aerospace side and defence is taking place. We are having a big debate about that on the space side at the moment and there is an even greater debate on the security area where the relationships have historically been quite fragmented with small companies and government. That is a big part of our agenda. You are right, there is work to be done but it is underway and hopefully we will see some results in the next year or two.
Dr Wilson: Can I come back on the issue of SMEs and some of the issues that we face over the next couple of years. We all welcomed the SDR and the rebalancing of our international posture and defence posture, but the time it takes to do a proper SDR is not instant. Very few SMEs are sitting with fat order books with several years of sales that allow them to weather any reduction in order output by a principal customer such as MoD. Therefore, the SDR really ought to be conducted on a timescale which does not have a terribly deleterious effect on their business. One fears that when we get into the purdah that is always associated with an SDR there will be some fallout, especially in the SME community, and it will cascade down through the primes, the mid-tiers and finally hit hardest those who are least able to cope.
Chairman: That is a problem well made.
Q359 Mr Hancock: That uncertainty is not a good value one, is it, and it has persisted for a long time. The carriers are a good example, are they not? Every time a secretary of state or a minister speaks about the Navy or the aircraft carriers there is an on/off switch that the media relates to and there is a scare story about whether the carriers are ever going to be put in the water, et cetera. There has to come a time when industry say, "We can't cope with this state of limbo or on/off situation" and at some stage you are going to have to say, "We cannot go on operating like this" and Government is going to have to listen. It is not only the businesses that are at stake but the tens of thousands of jobs that are on the line all the time. With this on/off business and indecision, lack of speed giving clarity of thought into these issues, when are you going to dig your heels in and say, "We cannot sustain British industry on this method of doing things"?
Mr King: We are already making those decisions.
Q360 Mr Hancock: It did not come out in this, did it? There was nothing hard-hitting saying, "We're going under if you do not do something".
Mr King: The actions are stronger than the words. We have announced 3,000 redundancies across sectors of our business.
Q361 Mr Hancock: I know, my constituents are some of them.
Mr King: We do go to the MoD and talk to them about the consequences of decisions. For instance, on the decision around FRES slipping, so Warrior slipping, we said we would have to cut back on resources. You are quite right on the carriers, for a long time it was on/off and it does affect our employees and shareholders because they keep on listening to the rhetoric and you have to keep on saying, "This is a committed programme, we are building this programme and if we continue to build uncertainty into it, it will no doubt increase the risk profile which inevitably increases over time which inevitably increases cost".
Q362 Mr Hancock: Is it possible for you to help that situation by informing Parliament regularly of where you are as companies with these various projects? I am thinking of in my own constituency where we have redundancies in the aerospace industry, layoffs in the dockyard, et cetera, all due to, one way or another, the Government being blamed for their lack of a coordinated approach to defence spending - you make your excuses. I am interested to know how you keep your employees and Members of Parliament informed of the problems you are experiencing. We have to be part of that answer somehow, do we not?
Mr King: We do. We are committed. We give our employees state of the nations in terms of programmes and then particular information on their own business, which is why across the air sector and the land sector we have announced what will happen over the next two years whereas perhaps traditionally we would have done it over a shorter timeframe because we think we are being disingenuous to them if we are not telling them where the nature of this business is going.
Q363 Chairman: Then you get criticised for being too close to Parliament.
Mr King: That is fine.
Q364 Mr Hancock: I would rather you did that. Say on the carrier project where you have got loads of SMEs who are waiting for the decisions to be made ---
Mr King: We have committed to the SMEs.
Q365 Mr Hancock: You have?
Mr King: Where the design is mature enough on the programme we have committed full programme commitments to these people.
Q366 Mr Havard: On this issue about longer term planning, certainty and all of that, what is your view of this idea that the Ministry of Defence will have a ten-year planning horizon with the Treasury? Is that a set of golden handcuffs or is that a positive move?
Mr Godden: I think the industry view is that it is long overdue, that is one of the answers, but if you set that at a time of depressed economic conditions and say ten years in a depressed time you get into an argument about whether the cyclical nature of the economy and the needs of the nation have been cemented in at the wrong time. We would assume a ten-year plan is then refreshed quite regularly as most ten-year plans can never survive the ten years. The idea of an SDR every five years and a DIS as a follow-through to that is a sensible thing to do with a ten-year programme where you can make decisions about bringing things in and out of it and have to adjust, as all corporations do, to changing circumstances.
Q367 Mr Hancock: Could you live with that?
Sir Brian Burridge: Yes, we could. Absolutely.
Q368 Mr Hancock: Knowing that it was definitely going to happen?
Dr Wilson: Yes.
Q369 Mr Havard: Are there positive benefits in it?
Mr Godden: Huge benefits. For all those that live and work in the US, and there are lots of things wrong with the US and we can always bash ourselves versus the US, but the US is much less efficient than we are here in our opinion, the one thing that is absolutely clear is their commitment to longer term programmes and commitment to R&D associated with it is of great benefit.
Q370 Chairman: Do you see any difference between the ten-year rolling budget proposed by Bernard Gray and the ten-year indicative planning horizon suggested by the Secretary of State?
Sir Brian Burridge: Yes. We need to go back some many years to see when we had a ten-year equipment programme and, in parallel, a government intent on the way defence expenditure would be managed in that timescale. Not Treasury commitment, but intent. Without that your ten-year plan is not going to stand contact with the enemy. There needs to be a much clearer view of what proportion of national wealth is a government willing to commit to defence and security. It is as simple as that.
Q371 Chairman: In practice, can one not look at the Bernard Gray report and the Government's reaction to it and think that the Government has diluted it to the extent that it sounds as though they are bringing in something similar to Bernard Gray, but it is not Bernard Gray-like so much as just a tinge of Bernard Gray at the bottom of the glass?
Sir Brian Burridge: Until we see the colour of their money, in other words what they really do bring in, it is hard to comment. Your analysis so far is correct.
Q372 Mr Hamilton: Is it not the case that an MoD/Treasury remit in a review would be wrong because surely the other part of that should be BIS?
Sir Brian Burridge: That is absolutely right.
Q373 Mr Hamilton: If we are talking about a skills base it must be wider than that double-edge. That is part of the problem we have got.
Sir Brian Burridge: This is a national strategic
resource and it has not been acknowledged as such, the degree to which both
Government and the MoD in particular misunderstand or have failed perhaps to
define accurately what they mean by "operational sovereignty", which is not
really a good term, and the degree to which they need indigenous capabilities
in order (a) to support the defence industry and frontline forces, (b) to
generate the spin-offs in the wider economy, and (c) the connectivity with our
university and education system. We have
had a market approach to this for a very long time in the
Q374 Mr
Havard: There is an interesting discussion around all
of these things in other parts of the world, not the least of which in the
Mr King: There is no system that you can go to in any place in the world and say, "You can import that into the UK" and that solves all those problems, you are quite right.
Chairman: When you say you do not know how much that cost, as I understand it Bernard Gray did not charge for his review.
Mr Havard: I do not know about that. Pro bono work for the Tories now! I do not go to that club.
Q375 Mr Hancock: To follow up Dai's point, the very last sentence that Gray wrote was the one that Dai started to explain: "No evidence yet of a magic formula for acquisition reform that has been shown to deliver its intended benefits. Only time will tell in all these cases". There is not a single suggestion in here about where the future will be, is there? He says that he cannot find a solution, but he does not actually give too many ideas. Where were your ideas in this to help him try and find that? It is a pretty startling final paragraph, is it not? It is on page 229, the very last sentence in the book.
Mr Godden: Some of the comments were made earlier and if we try to summarise them maybe it sounds like a coherent set of recommendations. The comments about the fact that we made progress, IPTs, et cetera, and using those as case examples for driving those into the 200 programmes and getting the best practice in through that, that is one mechanism for doing this. Secondly, the skill issue that we talked about, to really address that subject. That needs some heavy lifting to get it to happen in a way that is not discussed in there. Thirdly, the decision-making process and the risk-sharing. Those are three or four of the things that we believe are absolutely essential for this to go forward. You asked earlier whether we are pleased with the Bernard Gray report, and we said we are pleased that it is being used for this type of debate to go to the next stage. That is as far as it goes but, you are right, it does not go far enough.
Sir Brian Burridge: Perhaps one of the criticisms is that it is easy to get hung up on the acquisition of equipment because the numbers are large and quite startling, but the ratio between the purchase price of, say, a fast jet aeroplane and its through life cost is 1:4. In interacting with Mr Gray, we made the point if you take a whole life view, which you must, then your support solution, availability contracting, is absolutely vital and that takes a long-term relationship, not only with the prime, who is the design authority, but also constructing the supply chain in a particular way. If you have a long-term relationship then you can run as a team and you can all put your skin in the game, as we say, you can all manage your bit of risk, but you cannot do that on a short-term basis.
Q376 Mr Hancock: I hate to use this expression, but would the four of you say that things can only get better?
Sir Brian Burridge: You never know until you know.
Q377 Mr Hancock: Would your impression be that we are now about to turn a corner which will improve this situation?
Dr Wilson: There are a number of suggestions now on the table which, if implemented, would make things better. I will point out a sentence in Bernard Gray's report on page 31, paragraph eight, and he is talking here about incremental procurement: "Many senior figures in the military and industry are keen on this approach, but unless significant steps are taken to subsequently reduce the pressure within the equipment programme it is unlikely to become a viable way of working". So we come back to that basic point.
Mr Hancock: He did not say how that could be done. I read that paragraph and I thought, "Where is his suggestion?"
Chairman: I want to get on to research and development.
Q378 Mr Havard: Can I ask one other question related to that. I happened to see him on telly last night, by accident, and he said, "One thing the MoD has not got is anybody at the centre who can deal with scheduling" and that is the problem, this business about what is in the programme and what is not and how you make these decisions about entry, exit and those sorts of issues. What is your view of what that scheduling process should be? Where should that be? Is that not a political set of questions as much as it is an economic or capability set of questions?
Sir Brian Burridge: There is some process aspect in that. The Ministry of Defence has a very elegant acquisition scrutiny process culminating in the IAB where they sign off on a particular acquisition solution to a capability or an equipment, but what they do not do is manage the integration of that into the broader financial programme. That is not seen as their job. That will end up with the Defence Management Board. I think Mr Gray takes some trouble to point out that the Defence Management Board is often not best placed to make those sorts of decisions.
Q379 Mr Havard: So who should be?
Sir Brian Burridge: It should be the IAB. They should judge affordability not only in value for money but in profiling and insertion in the programme and then deal with scheduling as required. This was one of the tenets of smart acquisition, that the Joint Capability Board would, in a sense, do this on behalf of the IAB, but where you are in a position of really tight resources, which we are now, it takes the higher level body to do it. The Defence Management Board is not particularly well placed to do it.
Q380 Chairman: The sentence that Mike Hancock read out earlier was: "No evidence yet of a magic formula for acquisition reform that has been shown to deliver its intended benefit". He found that startling. I know it is the run-up to Christmas, but I am afraid I do not find that startling; only time will tell.
Mr King: If you get reviews done of businesses generally they come up with there is no magic formula either.
Chairman: I am delighted that you do believe in magic formulas.
Mr Hancock: I was hoping that this guy would have come up with something.
Chairman: Maybe he will and we can find out next week. I want to get on to research and development.
Mr Hamilton: We will find out through David Cameron!
Q381 Chairman: Research and development is a matter of extreme importance. What proportion of research and development on defence equipment is funded by industry?
Mr Godden: I should have that, but do not have that number to quote here. I can bring it back later.
Q382 Chairman:
Could
you please bring that back. What is your
reaction to the planned future expenditure on research and development in the
Sir Brian Burridge: Two points. One is that it is insufficient because this is, again, a strategic resource, an indigenous capability, which allows you to manage risk, allows you to develop capabilities. It cannot be turned on and off like a tap. Secondly, because it cannot be turned on and off like a tap it needs to be managed strategically in that there needs to be constant cognisance of where the research programme is going as IPTs, delivery teams, gradually converge on the solution to their requirement. We have seen occasions where the two for plausibly good reasons have just not linked up, and those good reasons are often about time in the sense of getting your programme agreed before the shutters come down even further.
Mr King: I would just come back to one of the points I raised earlier. In the absence of a Strategic Defence Review, cutting back on R&D at this stage does seem to be putting the cart before the horse. You really need to have a plan. There is a long cycle for this activity. We are not talking about huge amounts of money that the MoD spends on R&D and it is precipitous to do it before we have got a clear Strategic Defence Review.
Q383 Chairman: Mr Godden, I want you to come back on this. I am disappointed in what you have said so far because I have heard you speak eloquently about research and development and I want you to do it again, please.
Mr Godden: I am sorry I do not have the numbers but I will get them.
Q384 Chairman: You do not have to have the numbers.
Mr Godden: For me, this is three things. One, it is an example of a knee-jerk reaction to pressure.
Q385 Chairman: What is an example?
Mr Godden: The cutting of the research budget, which is a 24% cut over three years.
Q386 Chairman: A 24% cut over three years. Which three years?
Mr Godden: That is 2007-2010. The latest announcement is from 471 million to 439 million.
Q387 Chairman: That sounds like figures. That is very helpful, thank you. Why is this a mistake?
Mr Godden: There are two reasons. One is it is one of the few things that has been analytically proven that spending on research and technology six to seven years from now means a direct link to the quality and nature of our defence products and equipment. We are storing ourselves up a problem. Who knows who and what we will be fighting in seven years' time. This is a signal that we are not interested in that. That is number one. Sorry, you have wound me up so I will respond to you.
Q388 Chairman: That is what I want.
Mr Godden: Two, it is totally contrary to the beliefs of most political parties that we are seeking to rebalance the economy and create a high value, high technology industrial base out of the pieces that remain in this country. For me, given that defence, and I will look more widely than defence, is 15% of the total national R&D spending, therefore that is a signal that somehow or other - I do not understand this - one part of us says we are trying to create a high technology economy and the other part is cutting one of the largest R&D activities in the country. Personally, being on the board of two companies where the impact of research and development being cut not only affects defence but this company deals with medical equipment and some of the industrial and scientific equipment, I have already noticed that impact. My last point is that this is seen internationally as a signal. There are many signals that the country gives about a commitment to industrial base. One is, are the politicians committed to the international selling of this sector or these activities; two, how much research and development does the nation itself put into this sector; and, three, what is the mechanism by which the industrial base is attracted in. In the criteria as I look at it, and perhaps speaking out of school for some of my members, they say, "With the UK as a base with this uncertainty, with a cut in R&D and over the next year or two with the disruption of a general election, this is not a very good set of signals about whether to invest here or in the UK".
Mr Hancock: Does it not go further than that? Is it not also about how the areas of research and development are geared, who is making the decision where the reduced resource is going to be spent? Who is telling the tale to make the decision a profitable one? One of the things I found mind-boggling over Drayson's first attempt was that he missed that point. Even though he talked the talk, the report did not produce the sort of commitment to research and development that I felt we needed as a country. This backs up what you said. Is it going to change?
Q389 Chairman: I think that is a question that you should be asking us rather than us asking you.
Mr Godden: I have addressed it with three Secretaries of State for Defence in a row and I have addressed it, as the Chairman will know, with the other political parties in opposition and have raised the subject quite openly. So far there is no action.
Mr Hancock: No, it is pathetic.
Chairman: I did not actually. Perhaps I should have done, but I am delighted you have.
Q390 Mr Havard: Are you also saying it says something about what sort of future customer we are going to be, or what sovereignty or dependency we might have in relation to what we might wish to do and if we decide strategically we want to do X we may not have the capability to do X and will be dependent on someone else to deliver it in a way that we otherwise would not be able to?
Mr King: Both the issues that you
raise in terms of what sort of customer and what capabilities the
Q391 Mr Hancock: You must be looking around now, must you not?
Mr King: Yes, absolutely.
Chairman: I have one final question which is nothing really to do with the Equipment Report, it is more to do with the report that we are doing into the MoD Annual Accounts. We have heard that we keep losing Bowman radios.
Mr Havard: Misplacing them.
Q392 Chairman: Dr Wilson, you have been making these with loving care. Is there any suggestion that you might have at a very affordable price, no doubt, for keeping track of these things?
Dr Wilson: Yes. There is a raft of work already ongoing to look after assets in the field. I do not think there is a simple answer to this. There does need to be greater integration of the existing systems that deal with configuration management of the platforms in theatre, linking that to some of the ordering mechanisms that MoD uses to call up spares when they find they need them. One of the key things that industry can do to help with that is put more people in theatre with the right skill base to get round some of these problems. We have been delighted to be able to put only a couple of people in to do repair and overhaul activity in the last month or so, but I would hope to see that would migrate to a technical management role and also to looking after some of the assets for them in there. Fundamentally, I think there needs to be a greater level of control applied. We have got mechanisms to help do that. When JAMES comes along - Joint Asset Management and Engineering System - so long as it really does have embedded in it a suitable asset tracker and configuration management system, I think we will see some improvement. The message I would have is accelerate rather than delay in those programmes.
Chairman: Thank you, that is very helpful. Gentlemen, many thanks indeed for this morning's evidence session. It has been very helpful, very interesting, and I hope that we can continue this on other occasions because it is very important. Thank you.