Management of the Typhoon Project - Public Accounts Committee Contents

Examination of Witnesses (Question Numbers 1-151)

Ursula Brennan, Air Vice Marshal Simon Bollom and Air Vice Marshal Stephen Hillier

9 March 2011

Q1   Chair: Welcome. I do not think that we have met two of our witnesses before.

We are focusing this afternoon on just the Typhoon, having briefly looked at the Typhoon previously in the context of major projects. You will remember there that there was a question mark over whether the MOD really required the third phase of that contract, and whether we actually just went into it because of the contractual commitment and the costs that would have been incurred otherwise. So I suppose looking at the Typhoon now, in the context of this NAO Report, we have got to ask the question as to how important is the Typhoon to our defence capability, and is it sensible to focus on it? I don't know whether Simon Bollom might be the best person to answer that.

Ursula Brennan: It's probably Stephen.

Stephen Hillier: I would say that the capability is vital for defence. I say that not necessarily from the perspective of the individual platform, but looking at it in terms of the capability requirement. The capability requirement is the combat air and the ability to control airspace. In order to control airspace, you need a highly capable and highly flexible platform such as Typhoon: to be able to safeguard the UK sovereign airspace; to contribute to NATO as part of our alliance commitments and to protect NATO airspace; to contribute to, or to do, the air defence task in places like the Falkland Islands; and also for those wider contingencies, which include, for example, potential use in parts of the Mediterranean and the Middle East, as we are seeing at the moment. That control of the air capability is vital. What is also vital is that we have a multi-role platform so that it isn't just capable of doing control of the air; it is also capable of doing the air-to-surface mission. The more tasks you can get in a single platform, the more efficient and effective you are. From my perspective, Typhoon is a vital capability that we need.

Q2   Chair: Therefore why did you consider cancelling the third tranche in 2004?

Stephen Hillier: At that stage in 2004, the Tranche 3 capability was not defined. We knew the numbers, but we did not know what we would actually be able to get within the aircraft platform, itself. Clearly there is the aircraft itself and then there is what it is capable of doing—whether it is sensors or the weapons we put on it. What was also not clear to us at the time was how we would be able to develop the aircraft that we already own contract for—the Tranche 1 and Tranche 2 aircraft. Those were uncertain factors. What we did know was that we had a requirement for a number of aircraft, which we defined there, but not the capabilities within them; and also how that played out across the wider combat air forces, for example in the Tornado force. As we then worked through subsequently, the capabilities that we would be able to get from the Tranche 3 became clearer and what we would be able to do to upgrade the aircraft that we already had became clearer, and at that point we realised that what Tranche 3 would give us was critical.

Q3   Chair: We're not going to spend too long on this, but it doesn't look to me a very credible story, because of the evidence that was given last time, and because in September 2007, we were so desperate for these aircraft that we sold 72 to the Saudi Arabians. If we needed them, why did we try and cancel Tranche 3 in 2004, and why in September 2007, did we flog off 74 Typhoon aircraft, including 24 Tranche 3, to Saudi Arabia? So if you needed them for our defence capability, why did we sell them?

Stephen Hillier: The aircraft which we sold to Saudi were Tranche 2 aircraft, rather than Tranche 3 aircraft.

Ursula Brennan: 24 of them.

Stephen Hillier: 24 of them.

Q4   Chair: I see, "including 24"—you are right. But it would be wonderful just to have a little bit of honesty around it. It is wonderful that you tried to get out of Tranche 3, which is the evidence we got last time, which suggested to us that you didn't want it. In the Report we have today, we see that you sold 24 to the Saudi Arabians, and yet you are trying to get us to believe that, actually, this capability of what will end up being 160 Typhoon aircraft at its maximum, was absolutely essential to our defence capability.

Ursula Brennan: Could I just attempt to put those various different facts together and see if I can explain it a bit? In the last hearing, we did discuss the MOU with Eurofighter with the partner nations regarding the numbers and the amount of money we had to spend on Typhoon, and we talked about the decision that was made in 2004-05. When we are looking at Typhoon, we are looking at it all the time in the context of the other combat air that we have got. What the Air Vice Marshal was explaining was that at the time that decision was taken about whether or not we would buy into Tranche 3, there were a couple of factors that were important. One was whether all the other partner nations were going to buy Tranche 3. So that was a conversation that was going on with all the partner nations: were we all going to go into Tranche 3, or were we going to stop where we were? The second question was: what would we get out of Tranche 3? At that time, the capabilities from Tranche 3 were not that clear. The ones we sold to Saudi Arabia were Tranche 2 aircraft. Subsequently, as we discussed in that previous hearing, those discussions internationally came to the conclusion that we would all go into Tranche 3. We then looked at our combat air requirement as a whole, looking at Tornado, Typhoon and the intention to move on to Joint Strike Fighter in due course, and we said to ourselves, "This is the amount of money that we have to spend with the contract for Tranche 3. Where does that fit in terms of our requirement?" The purchase that we made met our financial requirement in the MOU, and it also met our combat air requirement. If we had not bought those Tranche 3 aircraft, we would have had to have done something else: upgraded the Tranche 2s, which would not have been as good a deal as buying the Tranche 3s, or buy some other aircraft.

Q5   Chair: I do understand that, but I have to say to you that it stretches my credibility a little bit to think that, in 2004, you decide that you don't want Tranche 3. I could understand if you sat there and said, "The only reason we went for Tranche 3 was that we were contractually committed. It would have cost us a bomb to get out of that, and we then had to make the best of a bad job and try and ensure that those aircraft served their purpose." But put that together with selling to the Saudi Arabians, and you are left thinking—back to my original question—whether we have the defence capability that we really need. I would really like an honest answer in this Committee. I think it would help us in then trying to understand the challenges you face. Then, taking it forward, you have had to take some very tough decisions in the Defence Review, and you have taken out the Harriers and you are taking out Tornado, and I just wonder, in the whole context, as the value-for-money Committee, how much cost-benefit you did on that and how much was actually simply driven by the contractual commitment, and whether we have actually ended up with what we need, or what we have to have? I don't know, Stephen Hillier, whether you can answer that just honestly; it would be really, really helpful to the Committee.

Stephen Hillier: Perhaps if I start, and then I am sure Simon will continue on. I was involved in the Typhoon programme during this period, and, as I outlined, we didn't know what Tranche 3 capabilities would be in 2004, and we didn't know what we would be able to do with our Tranche 1.

Q6   Chair: You didn't want it in 2004. It wasn't that you didn't know; you took a decision which demonstrated you didn't want it—you took the billion out of the budget.

Ursula Brennan: I think to say that we didn't want it, implying that it was a redundant capability, would be incorrect. We were in an arrangement in respect of Typhoon with an expectation that we were going to buy certain tranches. That agreement was entered into a very long time ago when we did not know what would be in the different tranches. We then got into a discussion with the other partners in that consortium, where there was a general view that people were not sure whether they were going to go into Tranche 3. That being the case, if we had all decided not to go into Tranche 3, we would have sat down and said, "How else are we going to meet our capability requirements?" At that point in 2004, it looked like people were not going to go for Tranche 3, and therefore we took the money out of the programme, as we have said previously, on a risk-based decision that in general people were not going to go for Tranche 3.

  

Q7   Chair: Yes, and you agreed to sell 24 to the Saudi Arabians.

Ursula Brennan: Twenty-four Tranche 2 aircraft.

  Chair: It doesn't matter.

Ursula Brennan: It is very important, and perhaps Simon Bollom or Stephen Hillier could explain the very significant differences between the different tranches.

Simon Bollom: I just think the decision to sell 24 aircraft to the Saudis was actually a diversion of 24 Tranche 2 aircraft to the Saudis, and there was an expectation that we would make up the 24 when the Tranche 3 came along, which indeed we have done.

Q8   Chair: You didn't. I am sorry about this, and we are going to have to move on from it, but when you had done that, you had, for whatever reason, as Ursula Brennan said, taken the money out. You were hoping to get out of Tranche 3. So someone had taken a decision around defence capability, maybe influenced by budget considerations, and said, "We'd rather not have Tranche 3," and you decided to flog 24 to the Saudis.

Simon Bollom: If I may, the other point that I think is essential is that the point that we committed to Tranche 3 was the latest point at which the nations were able to make a decision as to whether to buy or not. At that point in time—so we are talking now about 2008 or 2009—before any investment decision of that case, you have to do a piece of operational analysis. As the PUS has mentioned, by that time we knew more clearly what capabilities would be on that aircraft and what the balance of force mix was that would deliver the best capability. All I can tell you is that at that time, the operational analysis and the supporting business case showed that there was a requirement for Tranche 3 aircraft, and that has been through all the usual scrutiny, through our Department and through the Treasury.

Q9   Mr Bacon: Can you just remind us: when you originally signed the contract, how many aircraft did you think you needed?

Simon Bollom: It was 232.

Q10   Mr Bacon: You are now going for 160, but you won't have 160 in service for very long, will you, before it drops down to 107? How many years will you have 160 in service?

Simon Bollom: I haven't actually got the—

Mr Bacon: Has anybody?

Stephen Hillier: It will be until the Tranche 1 fleet goes out of service.

Q11   Mr Bacon: Plainly the number will drop down then. That is a truism. I am not asking why it will drop down; it is plainly because Tranche 1 will drop out. What I am asking is: for how many years will you have the full complement of the reduced number of 160 in service?

Stephen Hillier: It will be from 2015, when we take the delivery of the Tranche 3, through until approximately 2018-19, when the Tranche 1 goes out of service.

Q12   Mr Bacon: Yes. So in other words, for somewhere between three and four years, you will have 160, which is already a reduced number from the 232 you originally said and thought you wanted when you signed the contract. You are now going to have 160 for a mere three to four years, and then you are going to drop down to 107. So all this effort that has been going on since 1987—or arguably since 1971 or however long—is going to result in 160 aircraft for three and a half to four years, and then you drop down to 107 aircraft. That is correct, isn't it?

Stephen Hillier: It is correct, but if I can just add that it is related to the Tranche 1 aircraft, which will not only be in service for that three or four-year period. We will have had service out of them since the in-service date, which was 2003. So we will actually have had, for some of the Tranche 1 aircraft, 16 years' service.

Q13   Mr Bacon: Obviously, at the moment, the Typhoons that are already in service have been alongside other aircraft like Tornado and so on—I understand that. I am really looking forward to the point when you have only got 107 Typhoons, and some of the others will then have gone out of service. It says in paragraph 1.13, "The Department has acknowledged that there is risk that the eventual fleet size of 107 Typhoons could result in shortfalls against mandated capability levels." In a way, that is not surprising, given that when you signed the contract, you thought you wanted 232, and now you are going to have 107. How do you manage that risk? Do we just decide we don't do things because we can't—because we have fewer aircraft than we thought we were going to have originally?

Stephen Hillier: Well, it is a combination. In comparison with when we signed for 232 to where we will be, our requirement has changed. The threats that we are dealing with and our commitments have changed, and they have reduced, so that allows us to reduce the number of aircraft. Also, within the aircraft that we actually have—that reduced fleet—they will be far more capable within each individual platform than we assumed when we went for 232. They will be able to do both the control-of-the-air missions and the air-to-surface missions with a wide range of sensors and weapons. There is always a numbers element, but within the numbers that you have, the more capability and the more multi-role you can get, the more you can reduce your fleet size and balance out the operational and the threat risk against the financial consequence.

Q14   Mr Bacon: Of course, even if the aircraft has all these different capabilities, you have to have pilots who can fly them. At the moment you have only got eight pilots who can do the ground-attack role, which is a surprisingly small number. When will you have all the pilots capable of flying all the roles?

Stephen Hillier: At the moment we have eight pilots trained in the ground-attack role because that is all we need. Each bit of training is clearly expensive. Flying hours are expensive, so what we do not want to do is apply flying hours to keep people with a particular skill set that we do not expect to deploy in operations. It has actually already increased from the eight that was in the Report. Time moves on and people get trained. As we move to Tranche 2 multi-role capability in 2012, the number will increase, and it will eventually reach its peak in 2018, when we have the full Typhoon multi-role capability, because that is the stage when we need pilots trained in that wide range.

Q15   Mr Bacon: Sorry, what is the answer to my question? When will all the pilots be trained in all the capabilities?

Stephen Hillier: 2018

Q16   Mr Bacon: And that means you will have as many pilots trained as you have aircraft by 2018.

Stephen Hillier: They will never be exactly in match, because there will be experience levels and there is a constant training task, but we will have the number of pilots with the skills we need for the operational tasks we have at that time.

  

Q17   Chair: It says in the Report that there are five pilots who are grounded because they have not done enough training hours.

Stephen Hillier: Yes.

Q18   Ian Swales: Can I just quickly expand on that? I don't know what the cost is, but we are talking about assets here that cost £120 million. It seems like buying a Ferrari car and then saying you cannot afford driving lessons. It seems a bizarre calculation if you have got this kind of hardware and you are saying that you cannot afford to train the people to use it. It seems crazy.

Stephen Hillier: I don't think the figure is £120 million per platform, and the figure is as in the Report. I would see it from the other direction: why would we use expensive flying hours to keep people with a range of skills that we do not expect to deploy in operations? I think that would not be a good way of doing business. It is better to focus the hours on what we actually need at the moment, and the focus for the Typhoon force at the moment is in the air defence role.

Q19   Chair: But why do we have airplanes that you do not need to fly? It is completely mad. You have got eight guys who can run it, you have got five grounded because they haven't got the training, and you have got your 170 trainee pilots whom you are sacking. Either we are wasting too much money on planes—and I think we'll come to an end with that questioning as we are not getting a straight answer on it—or you haven't got enough money to have enough people to do the job as pilots.

Stephen Hillier: Could I just come back? We have 48 pilots who are trained for the tasks that we require them to do. Eight of them are required to be trained for the multi-role task, and we have eight trained in that role. We have 48 pilots overall.

Q20   Chair: How many of the planes can do multi-purpose stuff?

  Stephen Hillier: Tranche 1 aircraft at the moment, Simon?

Simon Bollom: Fifty-two.

  

Q21   Chair: You have got eight pilots to work on 52 planes, of whom, if you take in sickness, holiday and so on, there are probably four or five at any one time.

Stephen Hillier: We just do not need those pilots to be operating the multi-role planes.

  

Q22   Chair: Then you do not need the 52 planes.

Stephen Hillier: We need them for the rest of the tasks. We need it for the air defence of the United Kingdom and for all the other air defence stuff.

Ursula Brennan: Can we just clarify that in relation to the whole of defence capabilities and defence assets, there are capabilities and assets that we are using in Afghanistan which are used all the time. They are being used, they come back and they get repaired, and they go back out and use them again. A lot of the role of the Ministry of Defence is about contingency. It is about being prepared, equipped and enabled, and having the capability. The capability consists of having the equipment, the training, the doctrine, the tactics, the weapons and so on. We have acquired the equipment—in this particular instance, aircraft—and we think of them in terms of readiness. How ready do we need to be?

Q23   Chair: I think we think in terms of sweating the asset so that you get good value for money. If you have got an asset of 52, rising to 160 and going back to 107, and you are only sweating the 52 with eight qualified pilots at this point in time, it seems to me to be very poor value for money.

Amyas Morse: There are a couple of things to pick up on, if I may. One of them you might have difficulty answering me very specifically about, but I would like at least to ask you a bit about it: what is the viable maintainable fleet size? Allowing for the fact that you have deployable aircraft multipliers—we understand all that—isn't it true that the size we are talking about is pretty low as far as having a viable fleet? Before you answer that, I would just like to also ask whether I heard you saying that we do not have the right number per platform. There is a number in our agreed Report. I may have misheard you there, Air Vice Marshal Hillier, but I got the impression that you were saying that it is not £120 million per platform. Was that what you said, or did I pick that up wrongly?

Simon Bollom: Could I come in there? That is correct. I think the MPR agreed figure was £73.2 million.

Q24   Mr Bacon: How do you calculate that into your summary?

Simon Bollom: That is the production cost of the aircraft.

Q25   Mr Bacon: What is £13.5 billion divided by 160? Production cost is £13.5 billion, and you are getting 160 aircraft. What is one divided by the other?

Ursula Brennan: This is the conversation that I think we have had several times about the distinction between whether you describe the unit cost as the development cost—

Q26   Mr Bacon: No, I am not talking about the development cost. I'm looking at paragraph 9: "The development costs of Typhoon have more than doubled to £6.7 billion…These costs are fixed regardless of the number of aircraft the Department buys". And then, a separate sentence: "The production cost of Typhoon is £13.5 billion." I am asking purely about the production cost. What is £13.5 billion divided by 160 aircraft please? I have already done the sum. You have just said £70-something million; what do you think it is?

Simon Bollom: That's what I think it is.

  Mr Bacon: Tell me the answer.

Simon Bollom: It is £73.1 million.

Mr Bacon: Is it? Why do I get £84.3 million, then? Dividing 13,500 by 160 gives me 84.3.

Q27   Chair: Tim, what is your figure from the NAO?

Tim Banfield: There is a difference, I think, with Simon's number, because there is a cost of capital number coming in, but that is a production number. What we have talked about in our Report is the total cost of buying Typhoon, which is development and production put together, divided by the number of units. That is £126.25 million per aircraft, if you take the £20.2 billion.

Q28   Mr Bacon: I was just coming on to the £20.2 billion. If you divide that by 160, you get £126.25 million. That is correct?

Tim Banfield: Yes.

Q29   Mr Bacon: That is what I thought. And you are saying it is 70?

Amyas Morse: Can we do the fleet size as well, please Chair? I did ask a point about viable fleet size. I would be quite keen that we don't lose that.

Q30   Mr Bacon: Yes, because if you divide £20.2 billion by 107, which is the fleet you are going to have after only three and a half years, you get a very different figure, don't you? You get £20.2 billion divided by 107—aren't iPhones great?—and you get £188 million.

Ursula Brennan: Actually, I think if you say, "We bought a certain number and then over the years they decline", by the time they wind out and there are only two left, you can divide your £20 billion by only two aircraft. I think that it a slightly unfair calculation.

Q31   Mr Bacon: You are right that it is slightly unfair, but it's not that unfair. At the end of the day, you are buying a fleet of aircraft. You are going to have 160 aircraft for only three and a half to four years—from 2015 to 2018 or 2019, as one of your other colleagues said in answer to a previous question. So actually, you are buying a fleet that will very soon be 107 aircraft. If you divide £20.2 billion, which is the development cost plus the production cost, by 107, you get £188 million. If you divide it by 160, you still get 84. So, either of them is a higher figure than you are talking about. How do you get to your £72 million figure?

Simon Bollom: That is the unit production cost of the aircraft. We have had a long debate about what should be included and what should not be included in that figure, and the way production costs are traditionally calculated—and you can look at any nation or any variant—is to accept that the development costs, which in this case were £6.7 billion, are sunk costs. You then move into a different phase of the programme where you do production investment and production.

Q32   Mr Bacon: But even on that basis, you get a figure of £12 million per aircraft higher than yours. You get £84 million.

Simon Bollom: If I may, I think as Tim has mentioned, this is the effect of the cost of capital.

Q33   Matthew Hancock: There is one really important thing on here, which is that there have been accusations made, in this Committee and elsewhere, that the MOD's pricing of assets and costing of assets is over-optimistic. Would you say that that has been the case in the past?

Ursula Brennan: When you say the pricing of them, you mean the forecasting and estimating?

  Matthew Hancock: The costing of them and the estimates of them in advance—exactly.

Ursula Brennan: Certainly our forecasting and estimating has been proven to be over-optimistic in the past.

Q34   Matthew Hancock: And here is an example of choosing not to include certain costs, which the NAO have included, in the cost that you state as your base line. It is obviously the figure that you carry around in your head—I can see that, and it is important in your job that you do have a figure like that—but it is different from the NAO's cost and, funnily enough, it is below it. Is that not part of the cultural problem?

Simon Bollom: Can I just come back there and say that I do not think there is any difference between our assessment of the cost and that of the NAO. It just depends on what you want to include in the unit price.

  

Q35   Matthew Hancock: Yes, and you have chosen to include as little in there as possible, to get the number to be as low as possible.

Ursula Brennan: Forgive me, I think we really are confusing ourselves here. It is the NAO that does not include the cost of capital, as I understand it. I think the NAO don't use that 86-something figure. If you calculate it without the development costs, the NAO similarly arrives at the same place as we do, I believe.

Chair: Let us move on.

Q36   Austin Mitchell: Actually, I want to get off figures. The prevarications the Chair has talked about over the third stage are just the latest indication of a project of which you have been trying to make the best of a bad job from the start. The Eurofighter was designed for a Cold War era in which our brave lads were going to be up there fighting against MiGs in the sky in a speeded-up version of the Battle of Britain, and protecting the Grimsby fishing boats in the North sea by shooting down the Russian MiGs that came to harass them. Now that has gone. How many air-to-air combats have we been engaged in since this was agreed in 1985?

Stephen Hillier: We haven't been engaged in any air-to-air combats, but that is not to say—

Q37   Austin Mitchell: So the answer is none?

Stephen Hillier: We have not been engaged in specific combats in terms of releasing weapons and shooting down aircraft, but that is not to say that we have not required the capability through the control of the air. We have used it in the United Kingdom, the Falkland Islands and Bosnia. We have used it in northern and southern Iraq. We have used these capabilities because we need to be able to control the air. I accept absolutely that the Soviet threat, which was what was around when Typhoon was first conceived, has gone, but the capability requirement to control airspace and to have a highly capable aircraft to do that has not gone, and the evidence has supported that over the last decade.

Q38   Austin Mitchell: Okay, the combats it was designed for have not actually happened, but it might have been useful. But to go back to 1985, it seems to me that you had three alternatives: going with the Americans, as we were offered, on the F-22, which is not yet in production but has a greater stealth capacity, which is the thing we now need in the new age; go it alone, like the French with the Rafale, because they decided not to come in; or go for a co-operative European venture, which predictably was going to be more expensive, because European Committees always produce camels when they are trying to design horses. Inevitably, European co-operation was going to be more expensive. Why, of those three alternatives, did we choose the most expensive one?

Stephen Hillier: First, obviously, I cannot say what the decision making was in the mid-1980s, but I think I would emphasise that we have not picked the most expensive option. I do not know whether there were any discussions—

Q39   Austin Mitchell: But all the problems with suppliers and spare parts seem to be because it is a collaborative venture.

Stephen Hillier: But the F-22, which you mentioned, is vastly more expensive, by any measure you wish to use, than Typhoon. I cannot comment on Rafale specifically, but within the four-nation construct, what the four nations have done is built a superbly capable aircraft. This is leading edge, and I think that is demonstrated by the high interest in the export market. This is a very good aircraft. It is not something that has absorbed a lot of money and is not giving us good deal.

Q40   Austin Mitchell: Yes, but you are now having to adapt it at enormous expense to do air-to-ground and to go out and shoot wedding parties in Iraq and Afghanistan.

Stephen Hillier: I do not accept that latter characterisation because I have significant experience in the air-to-ground mission and the care that we take in that air-to-ground mission. But, what we have done, I think, is exactly what I would hope you would want us to do. As the strategic environment changes, we have adapted an aircraft that we have already bought to give it the widest range of capabilities and allow it to participate in the maximum number of missions. We delivered the air-to-surface capability in the Tranche 1 on time and on budget for £160 million. Now, I know £160 million is a lot of money, but actually to put the capability into an aircraft in a programme of this size for that amount of money shows that we have done well.

Q41   Austin Mitchell: Okay, just to clarify, is it better than the Rafale—or whatever the French did on their own—and the F-22, as it will be?

Stephen Hillier: The Typhoon is a more capable aircraft.

Q42   James Wharton: A quick question to start with, and I do not necessarily want an exact answer, but I think you will be able to give me a rough idea. Roughly how old are the oldest Tornados that you have got in service now—that you are using?

Stephen Hillier: The Tornado went into service in 1983. I doubt very much whether there any of those original aircraft are still in service, although Simon might be able to help out there. But what I would emphasise is that what we did with Tornado was to give it a mid-life upgrade programme, at considerable expense, around about the late 1990s and early 2000s. In effect, what we have done with the Tornado is similar to the tranches of Typhoon. We took a basic aircraft and we upgraded it to make sure that it was capable of seeing through its life, and that it had the broader range of weapons.

Q43   James Wharton: I am sure you can see where I am going. Is 16 years' service from a Tranche 1 Typhoon a good lifespan for a modern military aircraft of that type that has cost that much? Is it short, is it long, or is it average?

Stephen Hillier: I think there are two points, and I am sure Simon will come in shortly. First, Tornado and Typhoon are different generations of aircraft. The Typhoon is hugely more capable and also hugely more complex. Generations have moved on, and the life you are going to get out of the aircraft, in obsolescence terms, becomes more of an issue. I think the other thing is that although we have a planning assumption for Tranche 1, what we will aim to do, absolutely, is to get the best out of these aircraft for as long as we possibly can. We continually test and adjust our plans to make sure that we get the longest life and the most capability out of the aircraft, consistent with value for money. So we have a planning assumption at the moment, but we will continue to test and adjust that.

Q44   James Wharton: So that 53 aircraft retired by 2019 is a planning assumption, and if you got the opportunity to extend the life, you will look at that.

Stephen Hillier: It is a planning assumption. We have an obligation to get the best out of the money we spend, so we continually test and adjust these plans.

Q45   Chair: But a planning assumption based on what? Based on what you think your need will be then, or based on what you think the expenditure that will be required will be—what have you based it on?

Stephen Hillier: Both those factors, together with our ability to prevent obsolescence in the aircraft. This is a computer-driven aircraft and there comes a point where it ceases to be value for money to continue to run through on old equipment. So it is obsolescence, it is the threat and it is the numbers of aircraft.

Ursula Brennan: To pick up your point about the Tornado and the life of the Typhoon, because the Typhoon comes in tranches, it enables us to say, "Is it better value to invest in putting more into upgrading a Tranche 2 or a Tranche 3 than to try and do something with Tranche 1?" The judgments that we make about how long we keep aircraft are a mixture of the threats we face, the cost of keeping an older one in service versus buying some more new ones or upgrading new ones, the capability that we can get out of them and the extent to which it is possible to put software on. We are perpetually looking at those things and looking at the whole group of aircraft that are available to us and saying, "What is the best way of using these, and where should we be placing our investment to get most out of the thing as a whole?" That is why we have this concept of combat air, where we look at all the combat air together, not just at one aircraft.

Q46   James Wharton: I think you can say where my concern is going. I think we have to be very careful not to measure the cost of an aircraft in terms of, "That plane cost £80 million to get it on the runway." If that plane lasts 50 years, that could be really good value. If it lasts two years, it is terrible value. I just think sometimes it is over-simplified.

The other issue that we touched on earlier was about overall capability and numbers of planes. I appreciate we are talking about a planning assumption that you are going to retire 53. Obviously, the Joint Strike Fighter is going to come in and will complement some of the capability that will be lost through the retirement of Eurofighter. How can you make those planning assumptions when we do not yet know how many Joint Strike Fighters we are going to buy?

Stephen Hillier: You make assumptions about the numbers that we plan to buy, but it is a constantly evolving process. As I say, it will be the balance between the threat, the capabilities that we have between Typhoon and the Joint Strike Fighter, and affordability. It is the whole range of factors, and personally I think it would be wrong to be absolutely prescriptive and say, "This is what we will do," the best part of a decade in advance. We should have a planning assumption and continually test and adjust it from that perspective.

Q47   Chair: What is your planning assumption on the American fighter?

Ursula Brennan: We do not need to make a planning assumption about how many we buy for the Joint Strike Fighter at the moment, precisely because it is a completely different kind of contract.

Q48   Chair: But Stephen Hillier said that in his planning he has got an assumption? Are you willing to share it with the Committee? If you are not willing to share it with the Committee, just say so. Again, that will be easy.

Ursula Brennan: We think about the Joint Strike Fighter in a different kind of way, because we think about it in terms of buying it off the production line from the Americans, and we don't have to decide how many we are going to buy until much later than we would in something where we have entered into it—

Chair: Stephen Hillier did say that, in his planning assumptions on this, he had a planning assumption about how many Joint Strike Fighters you wanted. I am just interested, because the balance is an obvious question, isn't it?

Q49   James Wharton: The thing that worries me is that you can plan to retire Typhoons on the basis that the Joint Strike Fighters are going to be coming in and so you will still have the capability, but you aren't planning for how many Joint Strike Fighters are going to come in. How are you going to be confident that you are going to have enough fast jets to meet our defence requirements?

Simon Bollom: Can I try to help here? In terms of our assumptions about Typhoon, and as my colleague has already stated, in terms of the Tranche 1, we have looked at the obsolescence factor, and we have decided that the value-for-money decision would be take them out of service in around about 2018. For the Tranche 2s and Tranche 3s, which is the balance of the 160, we are assuming that they will run for their whole airframe life, so that will be through to—

  

Q50   James Wharton: The first tranche is not running its whole airframe life?

Simon Bollom: Correct, because of the obsolescence driver. Tranche 2 and Tranche 3 will run right through to 2030.

Q51   James Wharton: Thank you, I appreciate it. So just to be very clear on that, you have got 53 aircraft that have cost a lot of money which you are not running for their whole airframe life.

Ursula Brennan: Because we took a value-for-money decision that it was better value for money to invest in the Tranche 2 and 3, rather than try and upgrade to deal with the obsolescence in the Tranche 1. It is the same type of decision, as my colleague said, that we made in relation to Tornado. In relation to Tornado, you keep those aircraft going to keep the airframes through to the full extent of their life before they fall apart only by investing a lot of money. It would have made no sense to invest more in keeping an older airframe going than we could invest in a newer airframe to get the capability.

Chair: I just make a comment on this. If your obsolescence is an issue and a factor that determines how you plan and what you do, you should note that this plane took 20 years from planning to come in. You had approval for Tranche 1 in November 1987 and Tranche 1 was only completed and delivered in December 2007. Equally, this air-to-ground stuff is only going to be in by 2018. This shows that the delays in developing, producing and implementing the changes cost us even more, because the stuff becomes obsolete. That is just a comment that will no doubt be in our report, but it is an outrage.

Q52   Stella Creasy: In making your assessments about value for money, what impact does access to spares play?

Simon Bollom: A very significant impact. In terms of the obsolescence issue, it will be very much driven by the availability of the electronic spares, and principally the processors.

Mr Bacon: Can you just repeat that? The availability of?

Simon Bollom: Processors, the air electronics and the avionics. You will understand that the growth rate of processor technology is such that things have a very short cycle in terms of obsolescence these days.

Q53   Stella Creasy: I appreciate that, but can you see how worrying it is for us as a Committee to note that, for example, in December 2008 you placed an order for spares to support the deployment of the Typhoon to the Falkland Islands, and by August 2010, nearly 30% of those were either delivered late or outstanding?

Simon Bollom: If I may, that is a separate issue.

Q54   Stella Creasy: Why is that a separate issue? You are telling us that the availability of spares plays a key role in achieving value for money on these deals, but we are seeing consistently that spares are not being delivered?

Simon Bollom: Right, the first bit is on the decision about supporting a fleet. So the value-for-money judgment is made through life on the basis of being able to supply the right technology and the right spares to the aircraft in time. The piece that you referred to in the note there was about the availability of those spares at the time. So it is a supply chain issue. So it is slightly different. The deficiencies that are referred to in that Report are about production, not about the obsolescence and technology.

Q55   Chris Heaton-Harris: If that is true, what have you done? I am very lucky because I have been on the Armed Forces Parliamentary Scheme with the RAF twice. In 2001, I was in Akrotiri and there were three Jaguars on the floor being cannibalised—robbed for parts—to keep one plane going for the northern no-fly zone over Iraq. I was told at that point in time that there was going to be a just-in-time thing around the corner that was going to guarantee that future airframes would not have the same problems that airframes had at that point. Eleven years later, you are telling us we have exactly these problems again. That surely cannot be right.

Stella Creasy: You still can't get the bits that you need to keep the planes in the air.

Simon Bollom: We have a very complex supply chain that stretches all over Europe. I won't try to pretend that that supply chain has been absolutely seamless in delivering the parts exactly.

Q56   Chris Heaton-Harris: Are there any Typhoons on the ground now that are being robbed for parts to keep other Typhoons in the air?

Simon Bollom: Almost certainly. Every aircraft fleet in the world—

Q57   Chris Heaton-Harris: We have planes that we have spent £70 million to £120 million on. Can you understand my frustration that nothing has changed—or seems to have changed—in the last 10 years?

  Simon Bollom: The alternative approach to this would be to buy a hell of a lot more spares at the front end, which would mean a much bigger initial provision.

Q58   Stella Creasy: Can I, with respect, suggest a third option: you negotiate late-delivery penalties into your contracts for your spares?

Simon Bollom: Yes, on the face of it, that would seem to be the right thing to do. I think what I would say is that we have got a quadra-national organisation here. We have got four nations involved in this, four partner companies, and a whole raft of suppliers across Europe.

Q59   Stella Creasy: You have had that since the start of the contract. What have you learned in the various tranches? These problems are not unique to the last couple of years, are they?

Ursula Brennan: If you look in the Report, at paragraph 1.8, the NAO confirms that we have been learning from the early experience of that multi-national reliance on spares and certainly, in some cases, because of the way that the aircraft is designed and built, the spares have to come from international sources. But if you look at the Report, it points out that we both have been improving our arrangements with our partner nations and, where we have got contracts of our own, getting better results out of those.

Q60   Stella Creasy: So have you negotiated late-delivery penalty clauses in the contracts? If you are learning from it, have you negotiated so that we can claw back money if the fact that we are not getting parts means that you guys can't get the planes up in the air or you have to cannibalise the planes that you are flying?

Simon Bollom: That is not the way we have set these contracts out. Can I just go on to qualify what we have done? If you set up a contract of that nature, there will almost certainly be a huge risk element that you have to pay for in the capital cost of spares. The way that we have structured this is to put in place an availability service onshore with BA Systems and Rolls-Royce so that we incentivise them, not necessarily to give us spares or repairs in separate stove pipes, but to provide us with aircraft availability. We signed up to that contract at the end of 2009, and what we anticipate is that we will get very much improved availability of spares, as well as technical support and aircraft out of maintenance. What we are looking for is a holistic support capability.

Mr Bacon: But with respect, Mr Heaton-Harris was being told ten years ago when he was at Akrotiri that we were going to have a system that was guaranteed. You have referred to the nature of the quadra-nation contract and how that makes the supply chain more complex. For me, one of the most surprising sentences in this report, Ms Brennan, is where it says in paragraph 11, on page 7: "The Department did not anticipate the potential of these arrangements"—that is to say the rigid, collaborative work-share requirements—"to drive additional cost into the project." Why not? Isn't it blindingly obvious that if you do it in four countries rather than one, and you have rigid, collaborative arrangements that involve individual circuit boards travelling around Europe to have other things done to them, it is going to have potential, to say the least, to drive additional cost into the project? Isn't that blindingly obvious?

Q61   Chris Heaton-Harris: Can I reply to that? At the time when I was doing the Parliamentary Scheme—I am sorry, it was Interic, not Akrotiri, I apologise—I went to Shrivenham where there was the joint training university for the joint services, and I was sat in a room where people were just drooling about what was going to come forward with the Typhoon and thinking about these exact issues that we are talking about today. So somewhere in the MOD, these thought processes were going through; but when it actually came to the crucial point of doing the contract and the ordering and all this project management stuff, it disappeared.

Simon Bollom: I don't think it did disappear. I would refer back to what I talked about earlier about trying to put in place an arrangement, which has actually been very successful on Tornado and Harrier. Indeed, the NAO did an investigation into fast-jet support arrangements and we saved something in the order of £1.4 billion. So, going back to your Jaguar days, I believe we have learned from that. We have implemented new logistic support arrangements on Tornado and Harrier. The aircraft Typhoon is now at a sufficient level of maturity, technicality and production that that is exactly the sort of arrangement that we are going to capture on Typhoon.

Q62   Nick Smith: So exactly how many Typhoon aircraft are being cannibalised for spare parts today?

Simon Bollom: I'm afraid that I couldn't tell you off the top of my head.

Q63   Mr Bacon: What is the answer to my other question? Why didn't the Department anticipate the potential of these rigid, collaborative work-share arrangements to drive additional cost to into the project?

Ursula Brennan: We are talking about decisions that we made back in the 1980s. If you look back that far, I don't know to what extent we had had much experience, frankly, of working in collaborative arrangements.

Q64   Mr Bacon: But isn't it blindingly obvious that if you have rigid, collaborative arrangements where you share out the work in four different countries, and you have, as I said, individual circuit boards travelling around Europe to have an extra process added to them, that is going to increase costs? You don't need much experience of that to surmise that that will increase costs.

Ursula Brennan: I think the point is not so much that people didn't think, "Will involving four nations increase the cost?" It is the extent to which people anticipated that correctly. It is worth noting that in relation to the UK, we, as users of the Typhoon, have a much leaner approach to support costs than any of those other partners. So, we are in a multi­national organisation, but in support terms, we are actually working this aircraft more efficiently and more cheaply than our other European partners.

Q65   Mr Bacon: The whole point about these Kawasaki supply chains and all the rest of it is that they work. You get it just in time. You don't sit there grounding pilots because you don't have aircraft that can fly, which is what you've got. It is all very well them being lean, but they also have to work—and they are not working, are they?

Ursula Brennan: It is not true to say that they are not working.

Q66   Mr Bacon: They are not working adequately. In paragraph 1.10: "In 2010"—that was just last year—"the RAF temporarily grounded five pilots." Why were they grounded?

Simon Bollom: I can't disagree with what you have said.

Q67   Mr Bacon: Sorry, what is the answer to the question? Why were they grounded?

Simon Bollom: I was going back to what you said earlier. We didn't have enough flying hours at that time.

  Mr Bacon: No.

Ursula Brennan: That is the answer.

Q68   Mr Bacon: Sorry, you are talking about trained pilots?

Simon Bollom: You asked me why they had grounded, and it was because we couldn't generate enough flying hours at that time.

Q69   Mr Bacon: You mean you didn't have planes that would fly?

Simon Bollom: There were a number of reasons why.

Q70   Mr Bacon: I am trying to get this in clear, plain English that I can understand because I am not sure I understood your answer. The Report says: "the RAF temporarily grounded five pilots." Why were the pilots grounded?

Stephen Hillier: The reason why we would do that would be because they were not getting enough flying to maintain their currency and skills. I should point out, though, that this happens not just with Typhoon; it happens in other—

Q71   Mr Bacon: Okay, let's just pursue that for a minute. Why weren't they getting enough flying hours?

Stephen Hillier: I will ask Simon to step in, but it can be a combination of spares, engineering manpower and just overall availability of the flights.

Q72   Mr Bacon: Right, so when Ms Brennan said the lean supply chain is working, it actually is not working, because if it was, you wouldn't be grounding pilots due to lack of spares.

Stephen Hillier: It is not working, perhaps, in all circumstances, but in terms of context, the RAF has flown the same number of flying hours as all other nations combined, so we are getting far more out of aircraft. In that context, the spares and support arrangements are working well.

Q73   Stella Creasy: There is a much more pertinent question here, with respect. I absolutely appreciate that the decision for the original contract was made in the 1980s and you were not privy to it, but why has it taken until 2009 for you to renegotiate a contract—even with carrots let alone any sticks in it—about the spares issue?

Simon Bollom: I go back to what I said earlier. We went through a learning experience. We pulled that through from Harrier and Tornado, and actually getting in place the sort of commercial arrangements that you are talking about that lock four nations and a whole raft of European suppliers—

Q74   Stella Creasy: So you are saying none of the other nations expressed concerns about spares issues, and nobody, until 2009, thought, "Actually we need to get to grips with this?"

Simon Bollom: Not to the same degree.

Ursula Brennan: We have been driving this.

Simon Bollom: I think there is one important issue that I just want to refer to, and that my colleague raised. We fly more flying hours than the other nations put together. That just happens to be the case.

Q75   Stella Creasy: In terms of the value for money of these contracts—leaving aside whether or not you should have some sticks as well as carrots to deal with the under-supply of your supply base and your spares—to not learn or deal with the difficulties in your supply chain until 2009, given that the contract has been running for 30 years, is—

Ursula Brennan: It is just worth saying that it is not true that we waited from 1985 until 2009 and then woke up one day and said, "Let's renegotiate the contracts."

Q76   Stella Creasy: So what stopped you doing it before?

Ursula Brennan: There are two ways in which we have been seeking to deal with support and supply arrangements in relation to Typhoon. One is in relation to the international joint arrangements, and there are certain things that we have to do jointly. This is a jointly built and designed aircraft. That is the point about it being a multi-nation capability. There are things that we simply cannot do ourselves. So where we are talking about that multi-nation capability, we have been working with the joint partners to seek to improve the efficiency and effectiveness of that process, and we have been working to reduce the number of contracts to get the contracts working more slickly. The second thing that we have done is to identify the areas where we can set up our own UK independent contracts, and where we have been able to do that, the NAO points out that we have done that in a way that is working effectively.

Q77   Stella Creasy: Is that the cannibalising of other planes, then?

Ursula Brennan: No, cannibalising planes is something that is in the RAF's bloodstream. It is a thing they do with all their aircraft, because it is the best way of ensuring, when you have aircraft in different places of different natures to do different tasks, that you get the best out of the fleet you have. I doubt if we will ever arrive at a world where they won't want to take them apart and put bits on other planes.

Q78   Nick Smith: Can Air Vice Marshal Hillier tell us today how many of the Typhoon aircraft are being cannibalised for spare parts?

Stephen Hillier: I can't give you that, because it is a constantly changing picture. Now, cannibalising could mean that you have two Typhoons on the flight line, and one requires a very minor change of a part from one aircraft into the other. That would count as cannibalisation in this context. I don't think you would ever be able to put in place a support arrangement that was as quick and as agile as that. That is the immediate level. There is a broader impact, which is aircraft which are cannibalised over a longer term. But as I say, it constantly changes on a day-to-day basis according to the needs. What the RAF engineers are extremely good at doing is taking the assets available and maximising their utility and service ability to get the most flying hours out of them. So we can stop cannibalising aircraft and we would get fewer flying hours.

Q79   Nick Smith: Have you got a programme that reduces that to the very barest minimum? What would be your target for as many aircraft to go into the air as possible and not be kept on the ground? Because using your example, one in two could be out.

Simon Bollom: The alternative, if you wanted to guarantee that you would never cannibalise an aircraft, would obviously be to buy a lot more spares upfront, and those spares would be poorly utilised. So we have to balance those two things. What we try to do is to get as lean a buy of spares as possible, and then for exceptions you have always got the option of cannibalising. Even the airlines do this. So when do we think we will get to a steady state? Bear in mind as well that we are approximately 50% of the way through aircraft delivery. It won't be until 2015 that we get the last of our Tranche 3 aircraft. At that point we will have had all of the spares that we have built into our calculations delivered. We are on an upward ramp, and I would ask members of the Committee to bear that in mind. We reach our steady state in 2015.

Q80   Chris Heaton-Harris: So is there a guarantee that you can give the Committee? First, I don't buy the minor parts thing at all. If UPS, DHL and every other company in the United Kingdom rely on their logistics being just in time, minor parts should be able to be shipped around the world pretty damn quickly. But on major parts—I know that bird strikes come out of the blue and cause huge problems for canopies and stuff—I can understand the argument you are making. Can you give the Committee a guarantee that not only will things improve, but we will be in a situation where we do not have to moan at you on this sort of thing in five or six years' time?

Simon Bollom: I don't think we are in a position to provide a guarantee anything in the future. All I can tell you is that we have put in place the availability services and we have reformed the supply chains, and I expect those to be able to deliver the output that we have planned.

Ursula Brennan: And they are delivering now. The ones that we have put in place are currently delivering.

Q81   Ian Swales: Just quickly on your comment about the output demanded, figure 5 in the Report shows flying hours achieved against your requirement, and the situation has been getting worse. The number of hours achieved has actually gone down in the last year shown here, and while your requirement did go up, you took it down because you slowed the rate of pilot training. But the gap between the two is quite large, and has got worse since 2007-08, so clearly there is an issue. I don't know what is going to happen in 2010-11, but this is painting a terrible picture.

Simon Bollom: I did take the precaution of checking 2010-11, which obviously closes out at the end of this month—the end of this financial year.

Q82   Ian Swales: What do you think the figures will show?

Simon Bollom: They are back up at 10,800, so we are back on the upward climb, and our plan for next year is 13,000.

Q83   Ian Swales: What was your requirement this year? You think that 10,800 has been achieved this year; what was your requirement?

Simon Bollom: That is what we set out to do, and that is what we are on track to achieve.

  Ian Swales: Okay, that is good news.

Q84   Stephen Barclay: Can I first just clarify something that was said to Air Vice Marshal Hillier earlier? I do think a lot of care is taken on the air-to-ground missions, and I think officers have to take extremely difficult decisions. I wouldn't have wanted the Committee to have given a misleading impression on that.

Can I come to the Report at paragraph 1.4 on page 16, which says that the Typhoon is unlikely to be the ground attack of choice until 2018? Was that part of the cost-benefit analysis that was done in 2009 when you made the decision on the Tornado F3?

Stephen Hillier: Sorry, is this air-to-surface we are talking about?

Stephen Barclay: Absolutely. Let me clarify. In 2004, you took a decision to spend £119 million to upgrade the early Typhoons to deliver ground-attack capability. That was introduced in July 2008, and yet the very next year you took a decision to cancel the Tornado F3 and divert the Typhoon, and spent a further £48 million upgrading the Tornado GR4 in order for it to be the aircraft of choice for ground missions in Afghanistan. You are now saying that it won't be until 2018 that the Typhoon is the ground-attack aircraft of choice. What I am trying to understand is, having spent that initial £119 million to upgrade the Typhoon and then taken a decision to divert it, what cost-benefit analysis was done in 2008-09?

Stephen Hillier: If I can go back to 2004, first of all, because a cost-benefit analysis was done then against the Jaguar force. What the RAF wanted to do was reduce down the number of types that we operated, because that's where you get significant savings, so we took the decision to retire the Jaguar force early. In order to mitigate the reduction in ground-attack capability, which we had resolved, that was when we put in the plan to give Typhoon Tranche 1 an air-to-surface capability. I think Jaguar went out of service in 2007, and in 2008 we had that initial ground-attack capability in the Typhoon. The ground-attack capability we put in Typhoon at that stage was a generic one, and it was at a relatively low level of ground-attack capability. At that stage, we were not in Afghanistan in the way we are in Afghanistan now, so that was all going to be in the future. When it comes to looking at the forces required for Afghanistan, Tornado remains our most capable ground-attack aircraft. Typhoon was not at the same standard, and so Tornado was deployed to Afghanistan, and Tornado remains our most capable ground-attack aircraft. In relation to 2008, I was not involved in that decision making at the time—perhaps Simon may able be able to help me out. We then made another decision: if we run down the Tornado F3 force earlier and try and get it out of service and therefore save us money, how then would we mitigate the absence of the Tornado F3? The most cost-effective way was to dedicate the Typhoon to that task, and therefore to work it that way. So, what you have got is a Jaguar force, a Tornado F3 and a Typhoon force, and we have tried to get ourselves to the point where we just have the Typhoon force. We are focused now on the air-to-air role, because that's what we needed it for. We have got the Tornado to cover the ground.

Q85   Stephen Barclay: What I am trying to understand is two things, really. First, to what extent has that £119 million delivered value for money, and to what extent have the Typhoon and those upgrades delivered anything tangible? Secondly, the decision to then divert the Typhoon in 2009 has, I suspect, delayed the multi-role capability of the Typhoon. That has a knock-on effect on a whole range of issues, not just deployment to Afghanistan, but, for example, in terms of exports, which has a big impact on the production cost and the unit cost. What I am trying to understand is: when you took that decision in 2009 on the Tornado airfighter, to what extent was the cost-benefit analysis picking up the points we now see in this Report?

Stephen Hillier: If I can take the points in order. On the money that we spent on the Tranche 1 multi-role, clearly, the investment and the decision was taken in relation to the retirement of the Jaguar. We delivered that air-to-surface capability on time and on budget, and it mitigated the risk.

Q86   Stephen Barclay: But you don't use it?

Stephen Hillier: We don't require it at the moment. We could use it. It is at readiness. If we want to deploy that aircraft on an air-to-surface mission, we can do it. Why don't we do it in relation to Afghanistan? Because it does not have the full range of weapons.

Q87   Stephen Barclay: You have already got other kit that does that, so we have spent £119 million delivering an extra capability that is less than we already have on other planes, and we have those other planes we can use instead.

Stephen Hillier: But that is the world as we know it now. When we made that decision, it was not just in relation to the capabilities on the aircraft. We have a requirement for a number of aircraft capable in that role, and it was the retirement of the Jaguar that meant that we needed more aircraft that were capable in that role, and we used the Typhoon. But as I say, we continually test and adjust our plans. Threats change and operational requirements change. As I say, we can use it in that role; we have just chosen not to.

Q88   Stephen Barclay: Sure, but that role has been delayed, because it is now not going to be until 2018. I am trying to understand the extent of the delay as a result of the decision taken in 2009. If you took the decision in 2004 to deliver ground capability for Typhoon, had you stuck with that original decision, by what point would you have expected, in your professional judgment, the Typhoon to have become the ground-attack aircraft of choice?

Stephen Hillier: The timelines that we will roll out are the timelines that I would expect, because we have been talking about Tranche 1 aircraft. Tranche 1 aircraft will only get to the standard they have got now on the air-to-surface mission. At the moment we have an upgrade programme running on the Tranche 2 aircraft to bring them up to the multi-role standard. That will deliver next year, and you will have Tranche 2 aircraft of that standard. Why isn't it earlier? Because we need to approach it in an incremental-acquisition way, to make sure that we do not add in too much technical risk early on. It is also a four-nation programme, which gives us better value for money because the cost is shared, and the four nations need to align the requirements. As I say, we will deliver that in 2012. Those later capabilities, which will bring us to that full standard in 2018, is again part of that incremental, multi-national upgrade programme, gradually increasing new weapons capabilities as we go along. It is a technical issue and it takes time to write the software, do the flight clearances and do the trials work for this wide range of weapons, and we are doing this in a measured, paced way, because that reduces the technical risk and the possibility of failure.

Ursula Brennan: Just to clarify, 2018 is not late; it was when we expected to have the full multi-roles. We did not delay it. It was always intended to build up to that point.

Q89   Chair: Do you really think the four-nation capability is good value for money?

Stephen Hillier: If we weren't in the four-nation construct, we would not be able to afford this by ourselves.

  Matthew Hancock: That is a different answer.

Ursula Brennan: If you want sophisticated technology that is capable of combating the threats that your assessment tells you that you need to face, we could not have done that on our own. This was, therefore, the best value way of doing it.

Q90   Chair: Might it have been better just to buy it from the Americans?

Ursula Brennan: I think Stephen Hillier pointed out earlier that the American aircraft was more expensive.

Stephen Hillier: The particular example that was quoted will not be able to do the range of multi-role missions that the Typhoon will be able to do.

Q91   Austin Mitchell: Given that we have more of them, that we are using them more intensively, that we want to upgrade them for air-to-ground attack, and that the major contractors are British Aerospace and Rolls-Royce, as well the fact that there are delays in getting collaborative agreement—part 3 of the Report says, on page 29, that decisions on upgrades are expected in 40 working days, but the others don't meet that—what is to stop us from going it alone on the rest of the contract, on the spares and the maintenance, and on the upgrading?

Stephen Hillier: I will ask Simon to comment shortly, but it is a fact that the UK does not have the full range of skills. It would be inefficient, when you are in a four-nation programme, for all to duplicate and have the same level of skills. We are simply not able to do the upgrades without the co-operation of the other nations.

Q92   Austin Mitchell: What are our deficiencies in this range of skills?

Simon Bollom: Very simply, at the outset of the programme, 37% of the design is onshore. The rest of it is offshore. So yes, British industry might have the skill base to do that, but in terms of setting up the equipment, the software engineering and training the people to do the job, there would be quite significant costs there.

Q93   Nick Smith: You missed some key costs in the original approval for support, such as major maintenance. I see from the papers that the estimate for that at the moment is £16.6 billion. How are you going to stay within the cost approval for maintenance support when some of it is dependent on the collaborative arrangements you have already talked about? You talked about the complexities and time delays in supporting aircraft that we would like to see in the air. How are you going to make sure that you keep within the cost approval?

Simon Bollom: We have got a support approval that caps us at £13.1 billion. The estimate at the time that this was done was that if we change nothing, it would cost us £16.6 billion. So what we have put in place is a number of support-chain improvements, and I have mentioned one which is the availability service with BAE Systems and Rolls-Royce. The other significant ones are changes to the international contract that supplies us with avionic spares, and in particular, the most costly sensors, which are the defensive aid suites and the radar. I think we have got about 65% of the high-value avionic spares under this new contracting arrangement, which gives us a high degree of confidence that we will be able to deliver the required output from within the approval afforded.

Q94   Nick Smith: So you don't think you are going to come back to us in five or three years' time, and say, "Actually, it has cost £20 billion."?

Simon Bollom: I sincerely hope not.

Q95   Chair: The interesting thing is that these are the contracts with BAE and Rolls-Royce, right?

Simon Bollom: The first two that I mentioned are, and the other ones are international contracts.

Q96   Chair: Okay, but they were negotiated; they weren't tendered?

Simon Bollom: You are absolutely right; they are single source.

Q97   Chair: How can you then satisfy us or yourselves that you are getting value for money? Presumably you have put in tougher clauses to ensure delivery. Also, how are you, in the current climate, negotiating with BAE and Rolls-Royce to drive down costs? That is two questions.

Simon Bollom: In terms of the first question, we came to the conclusion that given the technology that we had got, and the way in which the work share is constructed, a competitive approach to future support was just not viable. There were no credible bidders into that environment. It then becomes a case of: how do we actually sweat the industry that we have already got and how do we drive best value out of it? I think I would just observe that in getting us down from the £16.7 billion to £13.1 billion, we have actually made quite significant progress.

  Chair: But you don't still know. So you have driven it down.

Simon Bollom: We have. We have still got to go further, yes.

Chair: I am just interested, these are big sums and you have decided there is nobody to compete in the market. How do you do comparisons?

Q98   Stella Creasy: If you do not have anyone to compare tenders with, how are you making an assessment when they come back to you and say, "Well this is the revised price we can do."? You talked before about using incentives rather than sanctions. I was wondering if you could say a bit about what those incentives are.

Ursula Brennan: It might be worth commenting on the principle of what we do when we go single source, because for a significant, though minority, proportion of what we do in defence, there is not more than one supplier. There is only one place where you can get something from, and we sometimes find ourselves negotiating a contract with someone where they are going to be the only supplier. In terms of this sort of thing, where you are talking about very high-end capabilities, the reason it went multi-nation in the first place was because we didn't have it within the UK. Then within the UK, if you are talking about looking at UK suppliers, you are going to be down to one. We have a regime under something called the Yellow Book, which is the regime that guides contracts that are done in government when they have to be done single tender. There is a whole set of checks and systems that we go through to ensure that when we do a single-tender contract, we do it in accordance with those rules around transparency and around how we are going to ensure that we get value for money. At the moment, we are having a review of that Yellow Book to make sure that we are getting absolutely the best value out of those single-tender contracts.

Q99   Chair: What is BAE's profit margin on it, then?

Ursula Brennan: BAE's profit margin as a company?

Chair: From its contract. If it is all transparent, what does it make out of it?

Stella Creasy: Does the Yellow Book set a profit margin?

Q100   Chair: No, not the Yellow Book. I am just interested, because we need comfort that in those negotiations with a single supplier, you are eking out best value for the taxpayer. You said one of the techniques used is transparency, so do we know how much money BAE makes out of the contract?

Simon Bollom: Yes, we do.

Q101   Chair: What is it then?

Simon Bollom: I don't know the answer to that, sadly, now.

Q102   Chair: Could you let us have a note?

Ursula Brennan: I will check whether that is information that we can reveal to you in contractual terms. On that basis, if we can, I will do so.

  Chair: I don't see why you shouldn't.

Ursula Brennan: One of the ways in which we negotiate these contracts is to agree progressive reductions in cost. We have actually identified reductions in support costs that we aim to achieve through these contracts. One of the things we do when we go single tender is actually to say, "This is how the price must come down through efficiencies from the contract over a period of years."

Q103   Chair: So what are the efficiencies on the BAE contract or on any of the contracts: the Rolls-Royce one, the BAE one, the international one? I don't mind which one. What efficiencies per annum are you looking for?

Ursula Brennan: We have identified £3.5 billion of efficiencies through the support of this aircraft over its lifetime.

Chair: That is £3.5 billion from the £16 billion?

Q104   Mr Bacon: Is that basically the difference between the £16.6 billion and the £13.1 billion?

Ursula Brennan: Yes.

Q105   Mr Bacon: Yes, okay. Can I just pursue this, because as it says at the bottom of that paragraph that is talking about the £16.6 billion and the £13.1 billion, it makes the fairly obvious point that as the number of aircraft has fallen by a third to 160—although of course it is actually going to go a lot lower than that; as we have established it is going to go down to 107 quite quickly—the unit cost of support per aircraft has risen by approximately a third on a like-for-like basis. Of course, eventually it will be more than that. That is where your efficiencies come from. My concern is alluded to in paragraphs 13 and 11, and also in paragraph 2.14 on page 27. Paragraph 13 states that if you are not careful, the "costs of under-utilised industry assets will be passed on to the Department on its remaining contracts—notably Typhoon." Paragraph 2.14 says explicitly—

  Stella Creasy: "84% of forecast support costs are not currently contracted for."

Ursula Brennan: There are three distinct points that are worth picking up quite separately there. On the latter point about 84% of forecast support costs not currently being contracted for, we are talking about over the lifetime of the aircraft until 2030. We would not expect to be on contract for some of those costs now. So that is No. 1.

Q106   Mr Bacon: I am sorry, I referred to paragraph 2.14 when I meant to be reading from 2.11. I was going to come on to the 84% point, but the relevant sentence is, "Unless industry is incentivised to restructure to manage this reduced workflow, there is a risk that under the existing arrangements, the costs of under-utilised industry assets will be recharged to the Department on its remaining contracts, notably Typhoon." In other words, that is what the current contracts allow. You can be alert to that risk, but how will you—

Ursula Brennan: Following the SDSR, we are engaged in negotiations with all our major suppliers about liabilities. The Yellow Book regime indeed provides for the presumption that if we have required a sector of industry to keep going in order to provide us with a service which we cannot get from anywhere else, the liability lies with the Government at the end of that contract. That is part of the deal of the Yellow Book. We have a review of the Yellow Book under way at present to make sure that those conditions are as effective and efficient as they should be. We have negotiations going on with all our major suppliers, following the SDSR, to identify liabilities and to ensure that the Government are getting the best possible deal from its major suppliers in that context. So across companies like BAE Systems and Rolls-Royce, and across all of the things that they provide for defence, we are currently engaged in negotiations.

  Chair: God knows how you are measuring it.

Q107   Matthew Hancock: Following on from exactly that point, and without prejudicing the review to the Yellow Book, do you think that it is sensible that all the risk of under-utilising industry assets should fall to the Government?

Ursula Brennan: One of the things we do when we do a deal, when you have to keep a capability going and you have had an end of life, is to ensure that we don't simply end up where the production line stops and then—bang—a large amount of cost lands back in the lap of the Government. There are all sorts of ways you can deal with that. Some of them are to do with whether you are expecting to have other equipments flow through the pipeline, and some of them are to do with the way you incentivise industry to bring those costs down over a period of time. There is a variety of things that we have in particular contracts and that we are doing across the various sectors as a whole, so this is a very live issue.

Q108   Matthew Hancock: You have just explained how you manage the fact that the risk all falls on the Government, but my question was: do you think it's sensible that all the risk falls on the Government?

Ursula Brennan: Sorry, I didn't mean to say that all the risk falls on the Government. If we say that we require industry to keep a production line, and a design and development thing going, to provide us with sovereign capability, we are paying for that, and if we don't do anything about it, the Yellow Book will say that the risk falls on the Government.

Q109   Matthew Hancock: Yes. Do you think that is sensible?

Ursula Brennan: Whether it is sensible or not, if we want that capability, we have to pay for it. The review of the Yellow Book is to try and get us to a generic different position. At the moment, we deal with it in individual contracts and individual sectors. In the submarine sector, the ship-building sector and the fixed-wing sector, we deal with those costs across the piece, but we are looking at the Yellow Book just to make sure that the rules are as sharp as they could be.

Q110   Matthew Hancock: And is one of the consequences of this rule that if you need to change future capability, once you have signed a contract, the cost of getting out of that contract can then be higher than the cost of carrying on with it? That's where I want to get to.

Let me give you a more specific question: you described quite eloquently how the threats have changed and therefore the requirement for the numbers of units has come down from 232 to 160. You also explained how, because of the huge amount of time that this was in gestation, capability per unit also went up, and therefore I think there is a very understandable explanation of why that number came down from 232 to 160. If that 160 number needed to change for whatever reason, for instance because there was an SDSR and you looked at the mix and wanted to change it, are we constrained from making a change to fit the military strategy, because of the contracts and the Yellow Book arrangements, which means that we pay for these things whether we buy them or not?

Ursula Brennan: When we are looking at choices about capability, you never have two completely separate buckets, one of which is called, "What would I like to have?" and another which is called, "Money". You are perpetually looking at those two things together, and all of the time, you are saying, in terms of the opportunity costs of the money I have now, facing the challenges that we face, "What would be the best way of spending the money?" If you came to a point where you said, "We are at the end of the line," and suddenly aircraft are no longer needed—

Q111   Matthew Hancock: No, please, if you listen to the question and then respond to it. I entirely accept that from a strategic point of view, but the question is: are you not constrained in your strategic choice by the contract and these Yellow Book arrangements, as opposed to by the needs and the costs were you to have a more flexible contract?

Ursula Brennan: It is certainly true that more flexible contracts of the kind like the JSF make it easier for you to turn the tap on and off, and that is one reason why we are contracting in that way for the JSF.

Q112   Matthew Hancock: So do you wish that you had contracted in that way for this?

Ursula Brennan: First, that option was not available when we contracted.

Q113   Matthew Hancock: You could have written a different contract.

Ursula Brennan: It wasn't open to us. Simply, as I have said right from the start, the reason why this is a multi-nation contract is because it wasn't possible for us to do this all on our own. If we had, it would have cost us an enormous amount more, so it wasn't possible.

Q114   Matthew Hancock: You had influence in that; you can't pretend that nobody made it up. Somebody wrote the contract.

Ursula Brennan: No, but the point is that the JSF is an American-built aircraft with a massive production line and it is possible to envisage rolling them off in those kinds of numbers. You can do different kinds of contracting when you are in that business. In this particular instance, is it the case that, if we suddenly wanted to do something different, we would be in a position where we would be tied up in the contract? It is difficult to conceive of a circumstance where you would suddenly want to turn something on and off. We don't approach things in that way. It is very rare that a capability suddenly ceases to be useful overnight.

Q115   Matthew Hancock: Yes, but there are changes, which you described very clearly.

Ursula Brennan: There are indeed changes, but the way we deal with that is precisely by these negotiations that we have with suppliers and sectors. We look ahead and we say, "Where do we think the fixed-wing sector is going? Where do we think Typhoon is going?" That is how we negotiate with our suppliers, so that we don't have those cliff edges.

Q116   Matthew Hancock: I would accept that, except for the fact that going to the big picture, which I know that this hearing isn't about, that all sounds a perfectly reasonable way of doing things, had you not got yourselves into this situation where the supply tube was overcommitted to the extent that it was as we have gone through several times in this Committee? Do you see what I mean? When you come to a decision about how to make sure that future cash and future commitments are consistent with each other, you were heavily constrained by the contractual and Yellow Book arrangements around Typhoon. Is that not true?

Ursula Brennan: I'm not sure that it is true. Are you going back to the Tranche 3 decision?

Matthew Hancock: I am going back to the decision over whether to change the 160 number.

Ursula Brennan: In relation to Tranche 3, we arrived at a point when we were clear what the Tranche 3 capability was, and we had a set of choices. We could have said, "Shall we stop doing this?" And there would indeed be a liability in relation to the MOU with Eurofighter. We could have said, "Let's pay that liability and invest in JSF," but JSF was further off—it is not there yet. Conceivably, I don't know, we could have said that we might have thrown some more money at Tornado, but that can't be kept going forever. So actually, in practice, we did indeed have a contractual arrangement in relation to the Tranche 3, but it also happened to be that it was available at the right time and in the right numbers to meet our capabilities. We didn't buy it because we were forced to buy it. JSF, which might have been another choice, is not available yet and is not yet flying. I guess we could have said, "Do we want to invest more in Tornado?", but Tornado can't be kept going out to 2030. I know it might sound convenient, but it is actually the case that our contractual commitment in relation to the Tranche 3, and our requirement for capability, came together to make this the right decision to make. That is why the business case made this the right decision to make.

Q117   Chair: We hear that, but we are going back over old ground. This must be our fourth or fifth hearing with the MOD and what comes up time and time again is that you are locked into these contracts or you are locked into expenditure, and that drives decision making. Whether, as you are trying to justify to us now, it suited your defence intent or not in this particular instance is open to question, but you are locked into it, and it never appears that the MOD tries to engage in a much more flexible way, which may cost more in the shorter term, but at least gives you the flexibility over time to adjust your programme to meet contemporary defence needs. Time and time again we are saying, "Well, at this point, it was an appropriate defence need." Ten years or five years down the line it suddenly changes. You never have the flexibility.

Ursula Brennan: I agree that the defence programme is indeed not a flexible programme compared with programmes elsewhere. We do sometimes have the opportunity to do things differently. We are doing things differently with the JSF. Some of what we are trying to do with the Global Combat Ship, which is actually to make it more modular, is a way of dealing with those things. So, some of the things that we have done in more recent years have been about seeking to do that. One of the things, though, that I think this Committee sees time and time again is that we are talking here about an aircraft that was conceived in the 1980s. There is a sense in which we are always coping with two different histories going along together: things which started a very long time ago, where we say, "Faced with the challenges we face today, what is the best way of using this capability?"; and things where we are saying, "We haven't invested this money yet; what is the best way of doing it?" JSF and Typhoon are two really good examples of starting at a later date. We are doing it in a quite different way with JSF, but we cannot rewrite the history of Typhoon. What we are doing with Typhoon is making the most efficient and effective use out of it as an incredibly successful aircraft that we have but that we ordered a long time ago.

Q118   Ian Swales: On that link between the Typhoon and the JSF, we are saying that we will have about 160 planes in service for four or five years in the mid-teens. Some observers are saying that there might be question marks over the Typhoon's operational radius or its stealth capabilities, particularly against the JSF. Is it actually credible that as the JSF starts arriving, these 107 planes will still be in service in 2030, or are we going to find that we buy more and more and more of the JSF and quietly retire these planes much earlier, and therefore it is even less value for money than we perhaps fear? In other words, I am talking about the capability going forward, because we are talking long time scales here. We are talking about a plane that had a genesis in the 1980s and it running to 2030. That is nearly 50 years, which for a technological product is unheard of in most other fields.

Stephen Hillier: The answer is that Typhoon is a fourth-generation aircraft, and JSF is a fifth-generation aircraft. There are certain characteristics of JSF that Typhoon cannot have because of the design, such as stealth, so you are absolutely right in that respect. As JSF comes along, it will be a balance between both of those platforms. The JSF is very well fitted to a high-end, stealthy, air-to-surface mission. You will not always require that mission. There is also a numbers business as well, which is that as JSF comes along, we will need both fleets of Typhoon and JSF, which is our plan, to cover the range of commitments that we have. Now, you could say, "Well, why don't you go to a complete JSF fleet?", but that wouldn't be getting value for money out of the very significant investment we have made in the Typhoon force. So right through to 2030, there will be a requirement for Typhoon—a multi-role, agile, highly capable aircraft—across a range of scenarios. There will be a certain set of scenarios, which are relatively limited, that Typhoon will not be able to do, and JSF will be part of that.

Q119   Ian Swales: So how many JSF planes do you expect to have in 2030?

Stephen Hillier: I think we had that discussion earlier on.

Ursula Brennan: We don't need to decide that now.

Q120   Chair: They have, but they are not going to share it with us, Ian.

Ursula Brennan: To be fair, 2030 is a long way off. We don't have to decide that now.

Q121   Chair: But I have to tell you, your colleague said he has a figure in mind.

Ursula Brennan: Not for 2030.

Q122   Ian Swales: My question is what the overall capability is. As well as everything else, we have obviously got to plan how much money we are spending in total on aircraft over this period. I just have this sense that we are going to find that JSF becomes the latest thing and we will find that the Typhoons quietly—

Stephen Hillier: Obviously, I cannot foresee what the threats are going to be in 10 years' time and what the operating environment is going to be. That is why we need to be flexible with how we do our planning. As I say, I think it would be wrong to set out right now: "Here is what we think is going to be right through to 2030." But from what we can see at the moment, there is a requirement for both platforms operating in a complementary way and in sufficient numbers to cover the range of tasks that we need to do. We don't need JSF to do every task. An example would be the protection of UK airspace and Falkland Islands airspace. Typhoon will remain immensely capable in that role right through to its out-of-service date.

Q123   Stephen Barclay: The Report makes clear that the senior responsible owner does not attend key meetings making strategic decisions, including those relating to exports and that budgetary and managerial responsibility is split between different parts of the Department. Could you just clarify why the SRO does not attend key meetings?

Ursula Brennan: The key meeting in question that I think you are talking about is the Typhoon Strategic Steering Group, which is the one that I chair. That very senior group is not a decision-making part of the Typhoon project and programme. It is a group that brings together people who are board members—people like the Chief of the Air Staff and the Chief of Defence Matériel. Because the Typhoon is such a capable aircraft and such an important part of our inventory, export issues raise a lot of issues that are not just to do with the airframe, but are actually to do with our international relationships with partners. It is those kinds of issues that get discussed. At that group, there are senior people who happen to be the line managers of the people who are actually the decision takers. In the classic way within government, we are briefed by the people who are the experts, but actually these are high-level discussions that are quite often about issues that are as much to do with international security as with technical aircraft issues.

Q124   Stephen Barclay: If we take the high-level discussions, does there need to be a culture change in the Department, in your view, on the issue of exports?

Ursula Brennan: I am not sure whether there needs to be a culture change. The new Government have made a very strong drive in relation to exports, and a lot of energy and effort is put into exports. There are exports for Defence equipment. It is not done by the Ministry of Defence, and export is not led by the Ministry of Defence; it is led by UKTI.

Q125   Stephen Barclay: Absolutely. I will come back to the SRO in a moment, because the project history, once again, has not been provided to the Committee. What I was picking up on was the evidence of Bernard Gray to this Committee. I asked him about the different view in his report to the evidence that General O'Donoghue had given. Mr Gray said: "I am sad to report that General O'Donoghue and I do not agree on all points", referring to exports. You were just referring to the top team, and the top team doesn't sound very united. I was just interested in your view as the Accounting Officer.

Ursula Brennan: Sorry, from memory, wasn't that conversation about whether we design in exportability early on into the life of the projects, which is a completely different issue?

Stephen Barclay: It was in terms of the capability and the way exports are factored in, which obviously is very material in terms of the Typhoon.

Ursula Brennan: Yes, the discussion that was going on there was about whether within the Department, when we very first conceive of a requirement for something, we have thought enough about exportability at the start. We recognised that we didn't have that factored into our early consideration to a significant enough extent. As a result, sometimes the manufacturers are a long way down and we are a long way down using something, and it becomes apparent that there are serious export possibilities, and then there may be difficulties about sovereign capabilities that have been built into the equipment. As a result of that, we have changed the way that we do project start-up so that there is a thing we now call the "Genesis phase." When we are thinking about a new capability, one of the things we have to say is, "Do we think there is a likelihood for exports here? Is it something that we are going to buying from a British manufacturer where there is a scope for exports?" And if so, we ask, "Do we need to think about whether there is a standard version of this and a modular version, or is it something where that will not be relevant?" That was what Bernard Gray and Kevin O'Donoghue were disagreeing about.

Q126   Stephen Barclay: Okay, well, we can perhaps come back to that later. But in terms of the SRO, I was trying to understand the role of the SRO and the decisions that he took, and I submitted a parliamentary question for the project history for the Typhoon project. The Department has said that it won't be available for 10 weeks. This is a document that your own guidelines say that you have. The four previous ones I requested were all marked unclassified and didn't have a single redaction on them. I was just wondering why that project history is not available for us today.

Ursula Brennan: We do indeed have this document. It is a large and detailed technical document that has embedded within it a number of other documents that do have commercial issues in, which we have had to redact. It has simply been the time that it has taken to redact that information that has unfortunately delayed our ability to let you have it.

Q127   Stephen Barclay: So that one has been redacted. Well, that is interesting because the project history I requested for the last hearing took seven weeks to produce, and that included the Nimrod project history, which was a £4 billion project history, which I have here. The project history runs to two pages. The project guidelines by your Department actually run to eight pages. I am trying to understand is why that project history was not available for our last hearing—it took seven weeks to produce, although it has no redactions and is marked unclassified—and we are now finding that Typhoon is unavailable for today. Is that project history compliant with your Department's guidelines?

Simon Bollom: The problem is, as the PUS has mentioned, it is a very comprehensive document full of embedded—

Q128   Stephen Barclay: It is two pages.

Ursula Brennan: The Typhoon one is a much longer document.

Q129   Stephen Barclay: This is the £4 billion Nimrod project history, and you have eight pages of guidance as to what goes in it. I have got them here. This is your project history. It runs to eight pages and it lists all the things that should go in the document. It is, in essence, a high-level audit. You can call it a project log, or a project diary or a project history—whatever you like—and some of the things it shows are who the SRO is, when key decisions were taken and what the cost impact was. It was what I was trying to drive at earlier in terms of, "On the Typhoon, one would want to see what the decisions were and what impact they had in 2008-09 and in 2004." What I am saying is that the Nimrod—a £4 billion project—has a project history that runs to two pages, and that took seven weeks to produce. I am trying to understand why that took seven weeks when it is unclassified and not redacted, and why the Typhoon, which I requested several weeks ago, is not available today and will take 10 weeks to produce.

Ursula Brennan: Can we deal first with the Typhoon?

Simon Bollom: I am sure that we could provide you with a two-page project history.

Q130   Stephen Barclay: I don't want the two pages. This is a document your own guidelines say that you produce during the life of the project. I actually asked a further parliamentary question to say, "Was this Nimrod document produced during the life of the project?" I was quite surprised when I got the answer, "Yes," so it was obviously being produced intermittently during the life of the project.

Simon Bollom: Yes, you have asked for a copy of the project diary or the project history. That is a very comprehensive document, and we are redacting it in order to be able to present it to you.

Q131   Stephen Barclay: Are you saying then, Air Vice Marshal, that the Nimrod project history is compliant with your guidelines?

Simon Bollom: I don't deal with it any of it.

Q132   Stephen Barclay: Can I come on to a different question, then, because we touched on the senior responsible owners, and I also asked for the list of the SROs on the Typhoon and also projects such as Nimrod and one or two others? It took 12 weeks for that to be produced. It was produced on the last day before a recess, ensuring that it missed our last hearing and also the Report, even though, again, this is information that your own guidelines say that you have. Can you clarify why it took 12 weeks to produce that?

Ursula Brennan: The reason it took that time to produce is because, if I remember correctly, you asked us not just for current SROs, but for SROs going back.

Q133   Stephen Barclay: Yes, I did. There were two questions. You answered the first one on 25 November, in terms of current SROs in post, but you didn't answer the question in terms of those that had been in post previously.

Ursula Brennan: Yes, sorry. All I meant was you are absolutely right that for identifying current SROs, that information is not difficult to obtain. In order to go back and identify the SROs going back through history, it is necessary to go back to each of those individual projects and get that information. That will take some time.

Q134   Stephen Barclay: First, your own project history should have had those, but you say it wasn't difficult to find the current ones in post. It was a little surprising to hear that the dates you provided for those currently in post differed from the answers you submitted in the Library on 18 February. The actual dates differed from the answers you gave me on 25 November; and the dates further differed from the evidence that Vice Admiral Lambert gave this Committee at our last hearing. Even with that one, the dates you submitted in all three answers were different. Again, I am trying to understand why that was the case.

Ursula Brennan: Do you mean the dates that people were in post?

Q135   Stephen Barclay: The dates of the SROs. If we take Brigadier Jaques, who was the person I cited—this heroic figure covering £17.2 billion of spend over six projects—the date of his appointment varies in all the three different answers submitted. Vice Admiral Lambert said he had been in post for three years and was on his second term, which works back to 2007. In the answer you gave in November, you said he was appointed to all projects on 29 October 2009, and you gave a series of different dates in the answer you submitted in the House of Commons Library in February. I am just trying to understand what is going on.

Ursula Brennan: Quite why all those different dates were associated with Brigadier Jaques, I am not sure.

Stephen Hillier: I don't know for certain, although I can check, but we have been going through process reorganisation, and some of the projects and programmes that previously didn't have SROs were then appointed SROs. So although someone like Paul Jaques may have been in post in 2007, that doesn't necessarily mean that there was a project at that stage for him to be SRO for. We have been going through this evolutionary process. I just offer that as one of the possibilities.

Q136   Stephen Barclay: Sure, but it took 12 weeks to produce an incorrect answer, or an answer that was different from others. You didn't provide the project histories for seven weeks, and we come to the hearing today, where one wants to look at key decisions taken throughout the life of the project, and once again the project history is unavailable. It just doesn't smack of a very transparent and open process.

Ursula Brennan: I apologise for the time it is taking us to produce the project history in relation to Typhoon. It is a comprehensive document.

Q137   Mr Bacon: How many pages is the full comprehensive project history—the one that you are redacting? How many pages is the comprehensive one that you need to redact?

Simon Bollom: I am told, in excess of 30.

Q138   Mr Bacon: Thirty pages. Quite frankly, somebody could go through that in a day or in a couple of hours—certainly in an afternoon or a whole day—and pull out anything that was commercially or militarily sensitive. Surely it is not that difficult.

Stephen Barclay: By way of comparison, the aircraft carrier one, which incidentally had no cost figure in the whole project history, which was quite interesting, runs to 20 pages.

Mr Bacon: I thought for a minute you were going to say 400 or 500 pages, which would be an understandable reason why it has taken so many weeks not to produce it. But it is just 30 pages.

Simon Bollom: As I said, it is taking out all the references, all the links and the embedded documents in there, and then it will be about 30 pages.

  

Q139   Mr Bacon: It is the delete button on the PC that you need to find.

Stephen Barclay: Which was not required for the other four.

Ursula Brennan: The issue about the embedded documents is that in this project history, what we have got is links to embedded documents, which are commercial documents, and also to documents that have secure information. What we have been seeking to do is to ensure that we don't just delete all of that, but make as much of it available to you as possible. However, that has required going through and identifying each of those areas.

Q140   Chair: Ms Brennan, can I just make an ask from this Committee, which I would like you to adhere to? We would like the note on that history to be a note that we can attach to our report, which means that we require it from you within a week of this hearing.

Ursula Brennan: I think that the Minister has written—

Simon Bollom: Indeed, I believe Mr Luff has responded.

  Chair: But it is a bit late to get it after the hearing.

Stephen Barclay: The answer he gave this morning was simply to say it would be put in the Library before recess, which was where I got the 10 weeks from.

Q141   Chair: Stephen, let us just say we want it within a week so that we can consider it as part of the evidence as we come to our conclusions.

Ursula Brennan: If the Committee needs it within a week, I fear it will probably have lots of blank spaces on it.

Chair: It is 30 pages—honestly! All I am going to say is none of us can believe that. We read reports and get our brains around 30 pages in a couple of hours.

Q142   Mr Bacon: One point of clarification. The £13.1 billion—or, depending on which number you take, the £16.6 billion—of support funding was originally predicated on 232 Typhoon aircraft. Is that right?

Simon Bollom: Yes, it was.

Q143   Mr Bacon: It was. So presumably one of the reasons why you are confident you can live within that number, and perhaps live within the lower original £13.1 billion number, is because you are now going to be servicing a considerably smaller number of aircraft—160 as the maximum for quite a short period, and then down to 107. Is that the reason why you are fairly confident you can live within that support number?

Simon Bollom: No, I can tell you that the £16.6 billion estimate is what we think it would have cost us if we had not taken the measures that I have already explained. So, believe me, these are measures that are real and that are commercial, in contracts, that will have to get us within that £13.1 billion.

Q144   Mr Bacon: Right, but the original £13.1 billion, when it was first estimated, was to cover 232 aircraft, and it is now going fairly quickly to be covering 107 aircraft by 2018. That is right, isn't it?

Simon Bollom: Yes.

Ursula Brennan: It is true, but one of the things that is quite difficult is that when you look at the support costs, there are no doubt washers and things of a quite lowly level where the volume of aircraft is important.

  

Q145   Mr Bacon: Quite a few of them are fixed costs.

Ursula Brennan: But there will be things to do with the avionics and so on where actually the change in the nature of the aircraft from Tranche 1 to Tranche 3, in terms of the difference in the capability and the difference in the software and all that kind of stuff, is really very significant. So it wouldn't simply be the case that if you went to the 232 aircraft and the 160, they would be the same. If you take 160 aircraft with a much higher-end capability versus the 232 at a stage when we hadn't designed in all that complexity, it is not comparing apples with apples, but I take your point.

Q146   Mr Bacon: No, of course not. I appreciate that, but none the less the total headroom you allowed yourselves was £13.1 billion, and now it is going to have to cover fewer aircraft, albeit with more advanced avionics and everything else. That is correct, isn't it?

Ursula Brennan: Yes

Q147   Mr Bacon: Two very quick questions, one of which is about SROs. Do you keep a list of SROs, centrally?

Ursula Brennan: We do, yes.

Q148   Mr Bacon: Do you keep the dates that they start and are appointed and the dates that they finish?

Ursula Brennan: I don't know whether we keep the—

Q149   Mr Bacon: Because it would be quite easy, the Treasury does it for accounting officers. They can tell us when accounting officers in your Ministry have been appointed and when they have left their job and have been replaced.

Ursula Brennan: We keep an account of their training, for example. Whether somebody literally keeps a list of their start and finish dates, I am not sure.

Q150   Mr Bacon: That is what interests me. It is so simple. As I say, the Treasury will do it. Just knowing who they are, when they started and when they finished seems frankly to be beyond the Ministry of Defence at the moment, and it ought not to be. It could be kept on one spreadsheet, and if you are not doing that yet, may I encourage you to think about doing that? That was a nod, was it?

Ursula Brennan: It was.

Q151   Mr Bacon: Excellent, excellent. We are into nods in this Committee.

Finally, you will recall that your predecessor, Sir Bill Jeffrey, told this Committee when we had a hearing on strategic financial management, that he had made a conscious decision to keep your Finance Director, Jon Thompson, aside from the role of strategic financial management. Well, you are frowning, but you can read the evidence. It was very, very clear—it was explicit. It was absolutely explicit that the Finance Director was not having the role over strategic financial management as it should have been in managing public money, and indeed, Jon Thompson gave evidence to us that he would expect it to move towards that position. Is that what is now happening?

Ursula Brennan: Absolutely, from 1 April, but the only thing I caveat is that it is not strategic financial management, which has always been Jon Thompson's responsibility. We might have a debate about that. It was planning. There was a distinction between strategy and planning and finance. Jon Thompson is responsible for the planning round as from the start of the new financial year in a few weeks' time, and the staff have been notified that that change is happening.

Chair: Okay, thanks very much indeed. I am going to draw this session to a close, and thank you very much for giving us your evidence.

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Prepared 15 April 2011