Examination of Witnesses (Question Numbers
40-59)
MINISTRY OF
DEFENCE
Q40 Mr Mitchell: And a list of the
costs of delay. Effectively it will be further delay, will it
not? How much money are we shoving into the pockets of contractors
because the project is delayed?
Sir Bill Jeffrey: The Report before
us today gives us an indication of the cost consequences of some
of the decisions to delay that were taken a year or so ago. The
difficulty about speculating about cancelling other projects is
that first of all it gives rise to a belief that we are just about
to do so; secondly, that sometimes there are quite sensitive commercial
considerations around them.
Q41 Mr Mitchell: I appreciate that,
but do you have a list in the Department of junkability?
Sir Bill Jeffrey: A list of?
Mr Mitchell: Junkability—which
projects could go? Let us not call it junkability, that is naughty;
call it a list of priorities of things you must keep and things
that could go. Have you drawn up such a list?
Chairman: He has a list but it is too
sensitive for us to see it.
Q42 Mr Mitchell: I am asking if he
has drawn it up.
Sir Bill Jeffrey: I was not saying
that, Chairman. If things were junkable I tend to think that we
would have junked them already. Addressing among the many high
profile projects for which we are responsible where the highest
priority is and where the lowest priority is is very much the
business of the Defence Review which we have spent some of this
hearing discussing.
Q43 Chairman: I must just complete
a line of questioning that Mr Mitchell was asking the Treasury.
So we now know from the answer you gave, Treasury, that you have
been aware of this imbalance for some time. I wanted to ask you
what set of measures you have now put in place to redress this;
but I accept that you do not deal with this day to day and so
I think it is only fair that I ask Sir Bill this question. The
Treasury being aware of the imbalance, what set of measures are
they now putting in place to address this imbalance?
Sir Bill Jeffrey: We and the Treasury
have discussed these issues throughout. I think that they have
understood the dilemmas we faced in reaching decisions about where
to take cost out of the Programme; and, as the Treasury Officer
of Accounts has said, I have not sought to second-guess these
judgments. Their main contribution to attempting to address this
issue has been to agree in the last few months to an indicative
planning horizon for equipment expenditure over the next ten years.
I would not underestimate the importance of that because the key
word is "planning". We do plan the Equipment Programme
over ten years, and indeed longer, but until we have such a run
of figures which the Treasury stand over it is very difficult
to judge whether that programme is affordable or not.
Q44 Mr Carswell: Sir Bill, the Report
suggests that it is delays that tend to drive up costs and there
is certainly a correlation between delays and cost increases.
I want to ask you a series of questions to see whether the relationship
between delay and cost increases was causational or something
else. The A400M. I am sure you are going to say that you are not
allowed to tell me but I will ask anyway: what is the latest expected
cost per plane?
General Sir Kevin O'Donoghue:
I would be very happy to talk to the Committee about A400M in
confidence at the end, if that was acceptable.
Q45 Mr Carswell: Could you tell me
what the cost is—it is the Committee of Public Accounts?
General Sir Kevin O'Donoghue:
No, I really cannot publicly.
Q46 Mr Carswell: We can always go
into private session at the end.
General Sir Kevin O'Donoghue:
That is what I am suggesting. There was a ministerial meeting
yesterday in Berlin. We are right in the middle of very detailed—
Q47 Mr Carswell: I believe it is
north of £100 million. Could you tell me, Sir Bill, why did
we not just buy the C-17, which would cost £70 million—we
know that—and it would be bigger?
Sir Bill Jeffrey: We are acquiring
C-17s; we committed to a seventh C-17 shortly before Christmas.
Q48 Mr Carswell: Because of non-delivery
of the A400M.
Sir Bill Jeffrey: As far as the
A400M is concerned it is a project for which we have various contractual
and other commitments; therefore, we are negotiating in good faith
in the way that the CDM has described. But, as he is, I am reluctant
to get into commercially sensitive detail about the A400M project.
Chairman: If there is anything that you
want to tell us in private, just park that to the end of the session.
Mr Carswell: For the record, I do not
want to be bound; I am here to hold the Ministry of Defence to
account and I do not wish to be bound by off-the-record briefings.
Chairman: Under the rules of the Committee.
Q49 Mr Carswell: So you cannot tell
us how much for the A400M—and you cited contractual obligations
as your reason for not going with the C-17. The Future Lynx. In
December 2007 the minister refused to say how much that would
cost; in January 2008 you revealed that it would be about £1
billion for 70. In July 2009 we were told it would be £1.7
billion—that is £0.7 billion more—and I now understand
that it is something like £1.9 billion. The unit cost of
these helicopters has increased because the number ordered has
gone down, as the Report shows. We could have bought a combination
of UH72s and MH60s for something like half the cost; why did we
not?
Vice Admiral Lambert: There is
a combination of reasons and one of the things we do need to look
at when we are looking at the Equipment Programme is what the
impact is on the other lines of development. The requirement for
Future Lynx and its run-on of the older Lynx means that we can
use similar training methods, we can use the same infrastructure,
et cetera, et cetera, and so the requirement for Lynx across the
piece, from both land and maritime does give a utility there which
is met by the Future Lynx requirement.
Q50 Mr Carswell: I am not sure I
understand that. Is it your view that it is good value for money
for us to spend £27 million on a helicopter, which we could
have bought for half the cost elsewhere?
Vice Admiral Lambert: Many of
the costs—and I do not know if CDM wants to come in here—that
you see as indicative costs we have looked at and there is often
a number of modifications we need to do, and other things, and
it is quite often that the indicative cost that one sees as a
headline cost are not the same costs as we pay at the end of the
day in the programme.
Q51 Mr Carswell: It is often said
that one of the reasons why we went ahead with Future Lynx is
sovereignty of supply. Can you tell me in which country the Allison
motors that go into Rolls Royce engines are made?
General Sir Kevin O'Donoghue:
No, I cannot.
Q52 Mr Carswell: Let me suggest that
if we had bought Sikorsky we would have been dependent on one
country but by buying Future Lynx we are dependent on two. I am
surprised that you did not know that.
General Sir Kevin O'Donoghue:
I am surprised that the Rolls Royce engines are not made in the
UK, if that is what you are suggesting.
Q53 Mr Carswell: Allison, the contractor,
is US-based. Sir Bill, is it your personal, professional and ethical
judgment that it is acceptable for the former head of the MoD,
your predecessor, who as Permanent Under Secretary was Permanent
Under Secretary at a time when rival bids were in effect excluded,
now sits on the board of a company that was given a £1.9
billion contract. Do you think that is ethically acceptable?
Sir Bill Jeffrey: I have no reason
to doubt the ethics of my predecessor. I am a bit surprised that
this Committee wants to get into that.
Mr Carswell: Can you see why some people
might be a bit concerned about that? This is, after all, a Committee
of Public Accounts.
Chairman: It is not really about major
projects. You can answer if you want.
Q54 Mr Carswell: Future Lynx is a
major project.
Sir Bill Jeffrey: I very much
regret what is in effect a personal attack on my predecessor.
Chairman: We now have a division, and
so I am afraid, Sir Bill, we will have to go and vote and we will
come back as soon as we can—in about eight minutes' time
or less, if we can. I am sorry to delay you.
The Committee suspended from 4.13 pm to 4.18 pm
for a division in the House.
Chairman: We are quorate; Douglas Carswell
is asking questions.
Q55 Mr Carswell: As I was saying,
it is not a personal attack on anyone. As a Member of the Committee
of Public Accounts I am looking to ensure that we get good value
for money and that the MoD is good at turning our tax pounds into
the equipment we need. Let me put it another way: will you look
to put in place steps to ensure that the revolving door between
those who work at the MoD and those who work for big contractors
means that we get good value for money rather than poor value
for money?
Sir Bill Jeffrey: The specific
issue of civil servants and indeed military people taking up posts
when they leave Government is quite a long way from the subject
matter of this examination, but is one that is dealt with by the
Advisory Committee to the Prime Minister that deals with these
matters. What I took you to be saying, Mr Carswell, was that there
is some question about the integrity of my predecessor and I do
resist that because it is, if I may say so, an unfair allegation
to make. Again, it seemed, Chairman, some way from the subject
matter of the MPR.
Q56 Mr Carswell: In any market where
the supply is constrained the seller sets the terms of the trade.
Do you think that perhaps one way of ensuring that there are fewer
delays and fewer cost increases would be to remove some of the
constraints on supply and perhaps allow General Sir Kevin or others
a more off the shelf, less protectionist way of spending the money?
Sir Bill Jeffrey: I think one
of the significant developments in defence procurement over, I
would say, certainly the few years that I have been in this post
but it goes further back than that, is to move away from an either/or;
that one either competes everything internationally as well as
domestically, or one is protectionist and insists that the requirements
be met from within our own country. What we have increasingly
moved towards—and it was set out very clearly in the Defence
Industrial Strategy—is an approach in which the procurement
approach is tailored to the individual case. In some cases there
is an evident need to look to the internal market because of considerations
of operational sovereignty, or because there is in effect only
one supplier. In these cases we have to be relentless in getting
in amongst that supplier, understanding the cost structure and
establishing demanding partnerships. In others there is a lively
international market and we ought to go to it to get the best
deal we can.
Q57 Mr Carswell: Two more questions—if
I have time for them, please—and it is tangential to the
Report, but I will try my luck with the Chairman. Urgent Operational
Requirements are more and more used. Would I be right in thinking
that that is because Urgent Operational Requirements allow you
to go out and buy what you want rather than what you are constrained
to do by the Defence Industrial Strategy?
Sir Bill Jeffrey: General Sir
Kevin may want to come in but it is not that; the definition of
the Urgent Operational Requirements is in a sense what it says
on the tin. The experience of actually being engaged militarily
is that the enemy, as they say in military circles, has a vote.
We learn through the campaign; we discover that equipment that
we may well not have in our core programme is actually required.
A very good example, to which we have responded more quickly than
we are sometimes given credit for, is protected armoured vehicles
and we use the Urgent Operational Requirements process with the
Treasury's agreement to acquire these sorts of equipment. And
we do so very quickly; it is not the standard equipment procurement
process. I think that the teams concerned deserve great credit
for the speed with which we do respond to these requirements.
Q58 Mr Carswell: I would put on record
that I repeat that I am not questioning anyone's integrity in
the MoD. A final question, if I could get away with it. How much
are you giving BAE for Mantis and why do you not just go General
Atomics?
General Sir Kevin O'Donoghue:
The reason we do not just go to General Atomics I would suggest
is because that is a skill that we need to retain in this country.
We must retain the ability to produce air vehicles of the future.
We could debate whether they are going to be manned or unmanned;
I suspect they will be unmanned in the future. But I think it
would be a mistake to lose that capability just by going to General
Atomics. Whether we do retain our sovereignty in conjunction with
our European allies or not I think is a question—whether
we join with the United States. If we lose that capability completely
we will lose the skill-sets and we will lose the infrastructure
and we will never be able to get it back. So I do think that we
need to keep this going.
Vice Admiral Lambert: And we may
not be able to run the Urgent Operational Requirements that we
would want to in the future.
Q59 Chairman: Sir Bill, you told
me earlier that the Treasury had given you a ten-year indicative
programme. Can you tell me what the rate of growth is in that
programme?
Sir Bill Jeffrey: I may have inadvertently
misled you, Chairman. What we have agreed to in principle is that
we should have such a ten-year planning line and the intention
is that it should be one of the products of the Defence Review
after the election.
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