Session 2010-11
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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
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Oral Evidence
Taken before the Public Accounts Committee
on Tuesday 1 February 2011
Members present:
Mrs Margaret Hodge (Chair)
Mr Richard Bacon
Stephen Barclay
Dr Stella Creasy
Matthew Hancock
Chris HeatonHarris
Mrs Anne McGuire
Austin Mitchell
Nick Smith
Ian Swales
James Wharton
________________
Amyas Morse, Comptroller and Auditor General, gave evidence, and Marius Gallaher, Alternate Treasury Officer of Accounts, NAO, was in attendance.
Examination of Witness
Witness: Mr Bernard Gray, Chief of Defence Materiel, gave evidence.
Q1 Chair : Right. Welcome, Mr Gray.
Bernard Gray: Good morning.
Q2 Chair : The Ministry of Defence got hold of you before we did. We were going to ask you to be a special adviser to us, so we are now asking you to give evidence to us. The reason we were very interested is that you did your Report on Defence Acquisition, which many of us found really interesting. You are now responsible for it, and I understand only a few weeks into the job-
Bernard Gray: Yes, four.
Chair : -with accountabilities within the Department. We would like to know from you how you are going to set about starting to implement some of the issues that you have touched on, which are very common to us here in the PAC.
Bernard Gray: Without being discursive, I think that some of the forces at work here are also replicated in other Government Departments about inflating costs inside systems. I have already had a bit of discussion with colleagues in other Departments. Cost inflation occurs particularly in capitalintensive Departments, and some of the key drivers in it probably do apply elsewhere, so I agree with you about that.
The Department itself rather helpfully summarised my summary of the situation by boiling it down to two key components. The first is, looking at the equipment part of defence, the new equipment acquisition and support, is the equipment programme in balance or not? By that we mean, are we planning to buy and operate the appropriate amount of equipment for the amount of cash that we have got?
Broadly speaking, that situation moved from a situation of rough balance a decade or so ago into significant imbalance by 2009. The Department was planning to acquire significantly more equipment than it was ever likely to be able to afford to pay for in new acquisition, and then subsequently operate in service, by that point. I alight on a number of key drivers that I think led to that situation. We can talk about those.
One of the things that has come home to me reasonably starkly since I first arrived-although I knew it theoretically, I now feel the full weight of it personally-is I am, of course, not responsible for generating that ask. That does not lie inside my responsibilities. But I am responsible for being accountable for the outcome of that ask, in the sense that the Ministry of Defence says, "We want this laundry list of things bought," and I then have to go and get them. That is my job; to go and get what they asked for.
What do you do under circumstances where they are asking for significantly more than they can afford to pay for? How do you make sure that you are being asked for a sensible amount of equipment, when technically you do not control the part of the Department that is asking? If one looks at one issue, that is the biggest single issue that the Department has to get right.
Q3 Chair : But you accepted a job, if I can put it that way. You willingly went into the MOD with a job description and a post that did not resolve it. So I am not quite sure-
Bernard Gray: What I am saying is that that problem needs to be resolved.
Q4 Chair : By when?
Bernard Gray: I do not know. I will answer your question, if I may. The programme needs to be in balance, and one has to work in a collegiate way with other members of the Department in order to make sure that that is happening. That is the most significant issue that the Department has to get right and keep right, going forward.
To alight on your general point, I made a whole series of recommendations in my Report-for example, for 10year budgets for the Ministry of Defence, which gave planning certainty over long periods of time, which both the last Government and this Government have not, at least to date, chosen to take up. They do not lie within the purview of the Ministry of Defence; they are for Government as a whole, and the Treasury and so on, to decide. But in my view, they would significantly bolster that decisionmaking capability around all those sorts of things. There are many things that lie outside one’s control that none the less one has to deal with. That issue, in collaboration with others, is the most significant. If the Department does not get that right, then any of the other consequential changes that one might make are essentially swamped by that output.
Q5 Chair : I am not trying to catch you out at all, but it is a serious point. You make a very important point, which I think we would all share around the table. But you did accept a post, and there must have been discussions or something around it. You accepted the limitations of the post you now occupy, which you say give you an impossible task; you are being asked to deliver something that others who have decided the defence programme-
Bernard Gray: I did not say it was an impossible task.
Q6 Chair : I thought you did, more or less.
Bernard Gray: Well, I did not, forgive me. What I said was that the most significant single issue here is not one that is under my direct control.
Q7 Chair : So how are you going to measure your own success?
Bernard Gray: I have to work, as all of us do, with other people, trying to come to a collegiate answer about what the right approach here is. I cannot, and the Permanent Secretary and Secretary of State cannot, singly determine the outcome. One is working within a group of people trying to determine the right outcome-with the Chiefs of Staff, the rest of the Defence Board and Ministers, and so on-to come up with an answer to that question.
I have significant professional advice to offer around that, and all the signs are that people take that seriously, but one is working in a team to deliver an outcome. Success or otherwise will be measured by whether the Defence Equipment Programme is more in balance in five years’ time than it is now. One of the proposals that was taken up from my Report was that the National Audit Office should take a look at the balance in that programme. The National Audit Office will, I guess, over the next five years, report back and tell you whether this programme is more in balance or not. If it is, even though I am not directly responsible for it, I will probably choose to take some credit for that.
Q8 Mrs McGuire: You have identified the main problem with the Ministry of Defence in your opening comments. If I could put it like this, the problem is the decisionmaking dynamic between the politicians on one side, the Chiefs of Staff on the other, and somewhere in the middle there are the accounting officers and the civil service. Up until now, nobody has been able to resolve that problem, or the problem that potentially can happen when the politicians have a strategic agenda, whether it be going into Afghanistan, or Iraq, or Bosnia, or Sierra Leone, or whatever. They make a strategic decision as to what is the perceived national interest.
You then have Chiefs of Staff saying, "Actually, Minister, Secretary of State, we cannot carry that out unless we have x number of helicopters, etc, which of course will take us over our budget." How do you manage that sort of pressure within a collegiate situation, when both the wings, if I could put it this way, of those who are involved in the decision making have access to all sorts of other levers of public pressure? How do you resolve it? Your problem is the same as it was for those who have gone before you.
Bernard Gray: Sure. I am acutely conscious of this.
Mrs McGuire: I remember during the Strategic Defence Review, which you were involved in, one of the Ministers jokingly said that what we should do was to name all the aircraft carriers after the Chancellor of the Exchequer. He was alluding to the fact that the French keep naming theirs after the President. I think Charles de Gaulle had about three aircraft carriers, or something like that.
Matthew Hancock: He is no longer involved in decision making.
Mrs McGuire: Who, Charles de Gaulle?
Bernard Gray: It does have something of a totemic role in their society. I note with interest the names of our aircraft carriers. How does one resolve this? Not easily, is of course the first point. Data is vitally important in flushing all this out. Just to add to your point, I think within that, and I say in here what I think, that all of the individuals within that structure that you describe are acting properly, according to the motives that are ascribed to them. The elected politicians are doing what the voters want them to do, and the chiefs are doing what their services think is the right thing, and the civil service are doing what they think is the right thing. It is not that people are acting individually improperly here. They are doing what we pay them to do. The problem is the collective decisionmaking dynamic that arises out of that.
The first issue, I think, to start flushing this out-and it came out partly in my Report-is to recognise what the data actually tells you. We need to significantly improve the data analysis and data presentation in the Ministry of Defence, to allow people to see what the problem is. My honest belief-I cannot prove this, but it is a personal opinion-is that people did not perceive the degree to which the forward equipment programme was inflating, because the data were never presented in that way. Some of the analysis that we put in there is not common to the way that the Ministry of Defence usually looks at things.
If you start to say to people, "What does the forward position look like from here?" and one thinks about it not as a series of small changes around a mean position, but starts to understand that there is a significant imbalance in the position, then people start to make more rational choices. If they believe that by saving 50 pence here or there, they can avoid any difficult decisions, then they will probably do that. If they think that they are £1 billion adrift on something, then they start to engage with making more sensible decisions, because they can see that the knockon consequences of failing to take them are serious.
The first part of the task here is to go in and work with colleagues to mine out the data about where we are and where we are going, so that everybody has a common intellectual understanding of what decisions we are trying to make. My experience of it is that when one moves on to that space, you get, if not perfect decisions, at least clarity. People start to say, "I literally cannot afford x or y," or, "If I buy z, it means I literally cannot afford a." You get people into that trading space. That is the first step, and then you need structures that allow you to make those decisions.
Q9 Mr Bacon: Could I ask you to expand the point you just made slightly? It sounds as though you are saying that because they chose not to look at it in a particular way, the people running the Ministry of Defence, spending well over £30 billion and employing a lot of managers, did not have a common intellectual understanding of the consequences of their decisions. That is basically what you are saying, isn’t it?
Bernard Gray: What I am saying is that the data, as analysed by the machine over a long period of time, including the National Audit Office and this Committee and so on and so forth, did not make it completely clear to people some of the forces that were at work underneath the surface of this. People were dealing with symptoms, very often. Lots of this Committee’s analysis of what goes on inside the Ministry of Defence is dealing with the symptoms of the outcomes. Why has this programme overrun, or that programme overrun? It looks at it as people looking in a very particular manner, rather than looking at the system as a whole and asking: "What is giving rise to this overall process?" It is true that the Ministry of Defence now has a significantly better understanding of the forces at work, and of the numbers involved, than it had three years ago.
Q10 Nick Smith: Mr Gray, best of luck with your new job. It is clearly a very tough assignment.
Bernard Gray: Thank you very much.
Nick Smith: We note you are already bearing some scars.
Bernard Gray: Selfinflicted, unfortunately. It is a selfharming thing.
Chris Heaton-Harris: Taking the job?
Bernard Gray: Yes, that too.
Q11 Nick Smith: The recent Strategic Defence Review talked about renegotiating some existing contracts for major payments. One, how are you going to do this, and two, how many contracts are you going to renegotiate?
Bernard Gray: A process has already started-it started in November, I believe-under the commercial director, to look at a substantial body of our existing contracts, of the order of 800 contracts, to see which ones we could usefully vary. That process kicked off with a team being established under the commercial director, and that person will be in co-ordination with the Treasury and Cabinet Office, and my organisation and so on, to drive through that.
What we will be looking to do is to see where we can drive down the cost of delivering particular services, where we can save significant money, where we can terminate things and come up with answers in different ways. But again, it is quite a complicated task, and it is at a fairly early stage of analysis. There are 800 programmes, and it has been stood up for eight weeks or thereabouts.
Q12 Nick Smith: How much money do you think you can save?
Bernard Gray: I do not know.
Q13 Nick Smith: When do you think you will know?
Bernard Gray: I do not know.
Q14 Chair : Presumably you have to stay within budget.
Bernard Gray: Sure. But this particular programme’s contribution to all of that is at far too early a stage-
Q15 Chair : It is pretty big. The procurement programme, which you are looking at, is probably the key cause of the regular overspend of the budget.
Bernard Gray: It is certainly a significant one, yes. My point is only that this is a component of our tackling that. The decisions taken in the Defence Review are all other components in addition to contract renegotiation, which go towards achieving the final outcome. Those decisions include the size of the forces, some of the forward equipment programmes that we are going to buy or not going to buy all together, the decisions made in the planning rounds and so on and so forth.
Q16 Matthew Hancock: How much more difficult is all of that because of the contracts that were signed?
Bernard Gray: That is an impossibly general question to answer.
Chair : Which contracts?
Q17 Nick Smith: On that, which are the contracts that you are going to try to renegotiate? What would you say were the priority ones?
Bernard Gray: As I said, they are looking at about 800 contracts at the moment.
Q18 Chair : 800?
Bernard Gray: Yes, exactly. As has been reported to the Committee before, we have several thousand contracts out there. They are looking at 800 contracts as a priority, to try to determine at this point, gather the data in there, which ones might usefully be varied to save us money.
Q19 Chair : Just out of interest-I will pursue that before I come to Chris-on what basis are those 800 selected? Do you know that? Are they selected because they fit in with the conclusions of the Defence Review, because they are high-value contracts, because the generals have now decided they do not need that particular bit of equipment? What is it?
Bernard Gray: All of the above. Which ones are the ones likely to lead to the most significant savings from our point of view? Which are the high-value targets?
Q20 Chris Heaton-Harris: I am interested in a part of your role that I hope is there, but has not been examined properly, which is really expectation management of what we can afford and what we should be buying. It is all part of the balance thing, and keeping things in balance. Five years ago, I was very lucky; I was on the Armed Forces Parliamentary Scheme, and I went to RAF Shawbury. They had two helicopter training simulators there, which cost huge amounts of money, and they were very keen to get a third, because they had a throughput of pilots that they wanted to maintain. Because they were told they could not afford the third, the trainers there had knocked up something. It had cost them £4,000, and as far as they were concerned, it was just as good as the pieces of equipment that were costing hundreds of thousands of pounds, although obviously they would much prefer to have the thing that cost hundreds of thousands of pounds.
There is a massive amount of price inflation in this business, and there are very few people buying. For me, in supply and demand terms, surely the buyer has some influence over the price of the product he is buying. I just wonder if you are doing a bit of expectation management, and also trying to press for that extra value.
Bernard Gray: I obviously cannot speak to the efficacy or otherwise of specific examples that I do not know about.
Chris Heaton-Harris: Fair enough.
Bernard Gray: As far as the general point is concerned, around the negotiation with suppliers, in several areas we are in a quasimonopolistic-monopsonistic position. That is a difficult symbiotic position to be in. Whilst there may be relatively few buyers, there are also relatively few sellers. Therefore one’s options for acquiring equipment are often limited, particularly given that we participate at the high end of warfare. The manufacturing of sophisticated equipment is often in relatively few hands. Therefore one is always in a balance of power negotiation.
There is an interesting policy question, which will partly be addressed through the current Green-soon to be White-Paper about the future way forward for defence industries within the UK, for example. One might say that one does not want to maintain a warship building industry in the UK, or a combat-air building industry in the UK. If one says, "Irrespective of the merits of any export potential or any employment impacts inside the UK, I prefer to buy from the open market," what are one’s choices for that, and how long do they last as open choices versus you becoming a captive customer of another person?
The policy choices in all that would be significant. But it is not the case that there are a large number of people queuing up with viable solutions at the front door that one can simply pick one in 10 off the cab rank in order to satisfy the requirement. Although we may not get into this today, competitive procurement is also not of itself a cure. Some of the most significant problem children, as it were, inside the programme have been procured as the result of open international competition.
Q21 Chair : That puts into question the skills in negotiating that.
Bernard Gray: Or the skills in delivering on the industrial side. We certainly negotiated good prices for things that industry then failed to deliver.
Q22 Chair : But they knew they could come back for more. Somewhere along the line somebody should have had a bit of nous, on both sides.
Bernard Gray: What I am saying is that a competition does not of itself deliver you a clear result. It is not the case that there are 10 people queuing up for every requirement, prepared to invest private capital on the offchance that they will get taken up. Even when one is in a position to be able to run a competitive procurement, it is not a cure for all ills.
Our problem is that we want the capability. This is a version of the point that has already been made. The Government, in the end, cannot alienate from itself its requirement to defend the country. If anybody has ever worked in companies, as I have, where you have software projects, which almost invariably go wrong, you want that software in order for your company to run. If you have a software supplier and it gets into difficulties on executing some project that is crucial for the accounting systems in your business, you face a choice. You can either pay the existing contractor more money in order to deliver the project in the end, or bankrupt the existing supplier and start over, spending more money. It is an inherent problem when one is unable to remove the risk because you care about the outcome.
Q23 Matthew Hancock: I wanted to ask about this question of capability within your area. What are you doing to improve the capability? You have been there for four weeks-
Bernard Gray: You mean skills and so forth?
Q24 Matthew Hancock: Yes. The skill set of the people to deliver on what is obviously a very difficult challenge. Given that you have described the systemic failure that existed before to get the data right and to appropriately address the requirements to the budget, what are you doing to improve the skill sets now?
Bernard Gray: In the whole four weeks that I have been there?
Q25 Matthew Hancock: Yes. You say that, but actually the fact that you have been there four weeks allows you to have an alternate, fresh pair of eyes.
Bernard Gray: Sure. If you are asking me what have I done about it, the short answer is that I have made significant efforts to start meeting my staff.
Q26 Matthew Hancock: What is your initial assessment of it?
Bernard Gray: I have had the benefit of doing this work on it before.
Q27 Matthew Hancock: Absolutely.
Bernard Gray: I am taking your question seriously. It is just that, to coin a phrase, Rome was not built in a day.
Q28 Matthew Hancock: Of course, no. My question is about your assessment of it and what you think needs to be done, rather than what you have done so far.
Bernard Gray: I thought you said, "What are you doing about it?" It is early days; that is all that I am saying. The first of the twin tracks of my Report was around the size of the forward equipment programme and control over that where, as I have said, the Department has made significant progress on where it was three years ago. One is not churlish. One should recognise that they have seen that, which is a difficult truth to recognise, and have started moving in the right direction. Is it completely finished yet? No. Have they moved significantly in that direction? Yes. A convert is worth many votes.
The second stream is essentially around what I would describe as not just the skills inside DE&S, but whether DE&S has the tools it needs to do the job. Part of that is around skills, but part of it is also around management freedom to be able to act or not. I will give you some of the wellworn examples that I have put in there, where both civilian and military tour intervals mean that as soon as people get expertise in a job, they get rotated on to another job.
Matthew Hancock: Yes.
Bernard Gray: Of course we are all human, so when somebody new arrives in a job, there is both a lack of experience of it, which I am currently enjoying myself, and also a desire to make a stamp on something that you are doing. Therefore there is a tendency to evolve whatever you have got hold of. Simply saying: "Oh, well, the previous person had it completely right; I will just keep going with the same thing," is not what human beings tend to do. Therefore one tends to get change inside programmes simply as a result of that churn, as well as a loss of skills and experience and memory, and so on and so forth. That turnover thing is driven by a much larger issue around the career development plots of serving officers and civil servants, which takes into account their operational experience-
Q29 Chair : We have been round this house so often.
Bernard Gray: I understand. It is a well-worn path, but it does not fundamentally serve the interests of my organisation for this to happen. The question is, how do you do something about that, bearing in mind that there is this very large flywheel that operates outside you? That is an example where the individuals themselves may be perfectly skilled, but they are not there for the appropriate amount of time. There is another issue around whether we have enough of the right skills. I alighted on finance, engineering and project management skills as three areas, for example, where we need more, and I think the Department have said they need more. In fairness, one of the things that the Department itself averred when I first arrived was that it wanted to upskill the organisation.
Q30 Matthew Hancock: When you first arrived to do the Report?
Bernard Gray: To do the Report, yes.
Q31 Matthew Hancock: Has there been much improvement since your Report?
Bernard Gray: There has been some investment in areas like cost estimation, for example, which had been cut back under previous efforts. One of the problems that one has in my area is that, as it were, we are an enabler. People spend money on this in order to enable the front line to happen. There is a natural tendency to want to cut down on the amount of expenditure on the enabler in order to spend the most money on the front line. One can see how that happens.
But the key issue is if you take away the ability to be a good negotiator because you cut down on the number or the quality or the experience of the negotiators, or the cost estimators, or the number of engineers, and say, "Why do you need all these engineers inside the Ministry of Defence, when you have engineers in industry?" You have all of these areas where people naturally want to cut in order to keep the front-line squadrons or regiments or ships at sea. There is significant pressure.
I appreciate that not many others in the world agree with me-one can always hope-but the reason that I described a GOCO structure was not for a doctrinaire reason. I was trying to imagine how one can get the management flexibility to have management authority to deliver what you think needs to be done, and enough injection of external skills to meet the need that the Department already felt it had, in areas like engineering and cost estimation and project management, and also to be able to invest in the appropriate way. We have talked about management information systems generally, but I think it is true that there is a need to invest in management information systems in DE&S, in order to understand how its performance is tracking, and monitor all that.
How do you get all of that stuff under an onthevote structure, where cash management and squeezing down on the cash front is key? I am sorry it is a long answer, but trying to manage all of that to get a better outcome, to say: "Will management of DE&S be better able, at the end of my tenure, if it is handed a pint into a pint pot rather than a quart into a pint pot, to deliver that pint to the customer?"
Q32 Chair : How long is your contract, just out of interest?
Bernard Gray: Four years.
Chair : Four years.
Bernard Gray: That is the second issue.
Q33 Stephen Barclay: There were two areas I wanted to touch on. One is around exportability and the other is in terms of the corporate memory and the lessons from the FSTA, and perhaps how that is shaping thinking on the Sea King helicopter.
On the exportability issue, I was very pleased to see in your recommendations your point, or your recognition, that there is an issue. You say there is insufficient clarity over which systems need to be the most technically advanced, and whether we could use sensibly an 80% option, and how that is impacting exportability. That was very heartening to see, but it was also surprising, because I asked General O’Donoghue specifically about this point, in our major defence hearings, when I said about 85%, 90% fit for purpose. His answer was that this is an issue that is addressed by the Investment Approvals Board, but that there is a presumption that everything is exportability. What I would just like to understand is why it is you feel that the current approach has not worked, and how the guidelines are being changed to address that.
Bernard Gray: We have been very successful in defence exports in a number of areas over quite a long period of time, particularly in the air sector, for example. Hawk is a global bestseller. Let us not let facts contaminate a good argument. While I am making the general point that we tend to be a bit esoteric in our ask sometimes, we have been very successful with a number of equipments, Hawk being probably the single best example, over 30 or 40 years.
Why do we need to do better than we are doing already, in my view? There have been a number of examples over the last decade or so. If one thinks about the Type 45 destroyer, for example, everybody acknowledges it is an extremely good ship, but nonetheless the £1 billion per copy price says that there are few navies in the world that could afford to buy it. That would be an example, and I do not know the answer-
Q34 Stephen Barclay: Of course, Mr Gray, we can all pick individual projects that have been exportable. What I am saying is that your Report recommends that the current approach mitigates against making products exportable, whereas General O’Donoghue was saying: "No, before any investment is made, this issue is addressed full square." It strikes me that your recommendation drives a coach and horses through the evidence given by General O’Donoghue.
Bernard Gray: I am sad to report that General O’Donoghue and I do not agree on all points.
Q35 Stephen Barclay: Okay. Perhaps it may be an issue that the NAO wishes to follow up. What would be helpful would be to get a sense of when new guidance is going to be issued. Are you planning to issue new guidance?
Bernard Gray: This is not entirely a matter for me; that is the first thing to say. The capability area, which is the one that generates the ask inside the Department, reports through to the ViceChief, not in to me. We had a discussion at the beginning about some of the impact that has on me. The setting of the requirement is, quite properly, principally the domain of the military officers who have to go out and fight with the equipment. One has to acknowledge that.
The question is: do we fully, at that stage of setting the requirements in the first place, take into account those exportability factors, the ability to build in growth and the spiral development type of quotes that people have talked about? My personal opinion is that historically we have not done so. That is my personal opinion. It may differ from others. The Department is now trying to do so, and the Type 26 global combat ship is a definite example. Here the UK is trying to run its national programme, but at the same time understand the requirements of other navies, to make sure that we are driving in cost unnecessarily that makes the ship unsuitable for others.
It is not simply going to be a matter of guidance. It is partly also a matter of behaviours. Can one encourage the people in the capability area to be talking to other navies-in this case, other armed forces-to be involving Richard Paniguian’s export staff-I have talked to Richard on a number of occasions since starting this job, and knew him before-to start to change the culture?
It is one thing if you say in the instructions, "You must take into account exportability," and people say, "Tick." I am sure that they would, but if you get it into people’s minds that they can exchange ideas with other navies, you may think, "Yes, we do not really need to do this," or, "That is a cheaper way of skinning this cat," and so on and so forth. That kind of dialogue is what is going to be needed to give it life. It is not going to be me, or the ViceChief, on some day bringing out a piece of paper that says, "Bang!". It is going to be about how you change the behaviour of the Department to really make that part of the way you do things.
Q36 Chair : What follows from that is: what do you feel yourself accountable for?
Bernard Gray: Ultimately, I am accountable for the delivery of the programme.
Q37 Chair : A programme that, unless you get other changes, might be undeliverable.
Bernard Gray: We all have to deliver things when many forces in life are outside our control. That is life.
Q38 Chair : We can hold you to account for the next four years.
Bernard Gray: I dare say you are going to, whether I like it or not.
Q39 Stephen Barclay: The point, for me, and where I was driving at with the guidance, is that the SRO, the senior responsible owner, might be a brigadier, but the people driving the heightened specification may be of more senior rank. Often there are a whole multitude of levels within the MOD feeding into that specification, and there are a lot of tiers around that. Given the recommendation you are making, I do not have a sense of how that culture is going to be shifted in order to empower, for example, the senior responsible owner; we have had concerns on this Committee about SROs anyway and their scope and the issues you are addressing.
What I do not have at the moment is how you are going to empower them, perhaps, to rebuff the prevailing culture within the Services themselves. Whether that is through guidance or other mechanisms, it would be interesting to see how that is going to be done.
Bernard Gray: I am conscious of the time, but just as the pressures are various, then the counterpressures have to be from various directions. Given that situation you have described, simply issuing a piece of paper on the day would not change that.
Q40 Stephen Barclay: No. We know from project history that the MOD do not adhere to their guidance anyway.
Bernard Gray: That is a statement by you, not by me.
Q41 Stephen Barclay: It is a statement of fact.
Bernard Gray: It may or may not be, I do not know. The key question is, can you get contrary voices at the table, where those requirements are being debated, that allow alternative choices to be made? Those include: do Ministers or the Government care about it? What are the views of Parliament? Do we engage with other navies or see how we can share cost and reduce cost? Do we understand-it is a data issue in part.
If you can see in the numbers the benefit of saying, "If we make these compromises here, we double the length of the production line and we take 30% off the unit production cost as a result, therefore you get this," and people really believe they’re going to get it, then they start to make those trades. If they say, "I have to pay the same price anyway, and what I get is a less capable ship or aircraft," why would they make those choices?
Stephen Barclay: I am conscious of time. Could I just then briefly come on to the other point of the Sea Kings and the lessons from the FSTA? There were concerns on this Committee around the fact that the comparator was used at 6% and not 3.5%, which was the Treasury’s guidance at the time. What was really driving that was that the existing planes were on their last legs, and so there was a defence imperative driving the PFI decision. I am just conscious that the Sea King helicopters are based, as I understand it, on a 1959 design, and entered into service in 1978.
I am unclear, for example, about how many hours of maintenance the Sea Kings require per hour of flight, and how that is projected to develop over the coming years. You may know or may not. To what extent are you concerned that the, again, the defence or the rescue capability requirement will drive the PFI decision in the way that happened with the FSTA, and indeed on other projects like the Manchester incinerator? Just your thoughts on how the lessons are being learnt.
Bernard Gray: Well, I cannot speak to FSTA, because it was a programme that happened when I was doing other things, not engaged with the Department in any way, shape, or form.
Q42 Stephen Barclay: You have read the Report, haven’t you?
Bernard Gray: Sure, but, I mean I was not there. I do not have a feel for the background in the way that-
Q43 Chair: But you will be responsible for the decision that has now been taken to vary that contract, so it can provide the covering-
Bernard Gray: All I am saying is that for an extant contract, which is already out there being exercised, I have not made it my priority in the first 20 working days to go and read it.
Q44 Chair: But you will have to renegotiate it?
Bernard Gray: Well-
Stephen Barclay: I accept the point.
Bernard Gray: So, I cannot say whether you are right or wrong about the use of comparators or anything else. I simply am not in a position to be able to make any sensible judgment about whether what was done there was good, bad, or indifferent. As far as the other thing was concerned, as was announced just before Christmas, a problem has arisen with that competition and we will be expecting a ministerial announcement in the relatively near future about the way forward on all of that. I do not really want to get into that any further. You may be surprised to know, I do not know off the top of my head how many maintenance hours-
Q45 Stephen Barclay: I accept that point.
Bernard Gray: I cannot offer any actual facts that would help you at this point, and the whole thing is caught up in a rather larger issue. As for the general point about how one makes PFItype arrangements generate value for money or otherwise, that’s clearly an important issue.
Q46 Stephen Barclay: Yes. The wider point that I was trying to make was that I think there is widespread concern at the MOD’s ability to learn from past procurement mistakes, and I assume your appointment really is to go the heart of that. This Committee has found the delivery of the FSTA to be a matter of concern. There is potential for similarities with the Sea King, and so while fully accepting that this happened before your watch, the corporate memory of the Department should surely be taking on board the lessons from that, and understanding, for example, to what extent the short-term pressures are getting in the way of getting value for money.
The concerns we have are: a) the "Groundhog Day" element of us finding the same reports over and over again; and b) not looking forward. One of the purposes of today’s hearing is to try and look forward and ensure that we take on board recommendations from the past.
Bernard Gray: Right, and all I am saying in response to that is the details of one are historic, from my perspective, which will have consequences that knock on through the rest of this decade for us in operating terms, but it happened some time ago and I have not yet looked at the detail of it myself. The details of the other are currently wrapped up in a problem that makes it probably inappropriate for me to comment any further.
Taking your general point, however, making sure that one understands value for money, whether that’s in a PFI contracting construct, or in a target cost incentive fee structure, or a fixed-price competition, or any other structure, is clearly going to be important. The Ministry of Defence I would say has learned, because not only has it appointed me, which I think one has to say I would not have put money on 12 months ago, but it has also, as it has itself said, taken some actions to address some of these issues. So it is moving in the right direction.
Clearly, learning the right lessons from the past is important, but the only thing I would caution about this is looking at symptomatic issues as though they were causal issues. One needs to look back at the drivers that are causing the behaviours, rather than the behaviours, because if you simply try and constrain the behaviours it just pops up in another way. You need to look at it more fundamentally.
Q47 James Wharton: I will be brief, partly because Mr Barclay, with his usual adept and incisive questioning, has covered many of the topics that I wanted to cover about the culture within the Department. What I would like to understand a little bit then, looking back over, is you said right at the beginning that in the space of around a decade the budget went from being more or less in balance to being out of balance. I would just like to understand what you believe are the key causal factors of that.
Bernard Gray: Well, I have listed them at some tedious length in here. In summary, there is a constant longterm drive by each of the individual single services, quite properly, to maximise its share of resources-whether that’s in manpower or in equipment; in this case it is relevant in equipment-and they will constantly be pushing to try to achieve that. It is clearly the case that they were successful in inserting more into the programme over the course of the last decade than they had hitherto been in pursuit of their own individual objectives, causing the total programme to rise. My analysis of it rested at, "This has happened," which was not common ground at the time when I started to do it, and what one might do to constrain it back.
I have not looked in detail at what it was that caused it to inflate out of control under those circumstances; I have some personal opinions, which I won’t share now, because they’re not based in fact, but I suspect a few things about it. But, none the less, it is a bit like living in Holland and dealing with the sea, and one needs to understand that; this pressure is always going to be there, and it is a question of managing that pressure, and one either does it better or worse. Clearly, a series of things happened over the course of the last decade that allowed it to expand significantly.
Q48 Matthew Hancock: I understand a lot of the points you make about looking forward and the changes that need to be made, both culturally and organisationally, within the structure of how we do defence procurement, in order to bring this under control.
A little bit of me suspects it would be useful to have a better understanding of what had gone wrong in order to put it right, but I appreciate that, if you have not got the sort of factual statements, you do not want to voice your personal opinions on that. Again, I understand you have only been there a short period of time, but do you find that there is a genuine will from officials at the Ministry of Defence to address this problem and get to grips with it, or are you constantly fighting an uphill battle against a culture that has been ingrained over a number of years?
Bernard Gray: Well, I think it would be both inaccurate and unfair to describe it as me fighting some battle against them, as it were. There are clearly going to be shades of opinion in the Department, as there will be in any organisation, about all of this kind of stuff. What I would observe is that in the past three years there has been a significant shift in the centre of gravity of opinion. So there will still be outliers in either direction-there are always going to be, but they have moved. They have asked me to join.
Q49 Ian Swales: Can I just build on what Mr Wharton has been talking about? In the management summary of your Report, it says that "the armed forces have a systematic incentive to underestimate the likely cost of equipment." That seems like, unusually perhaps, possibly an even too-cynical view. I’d like to explore the role of suppliers in all this, because defence companies are amongst the most profitable in the world. They have a constant incentive themselves to talk up threats and so on, like the recent news about the Chinese stealth bomber-it is expected to be a bonanza for Western defence companies as they compete with that.
If I was specifying a piece of equipment, I’d be thinking about talking to the industry, or at least finding some real information. So if you take some of the very inflated costs, to what extent is it, indeed, a knowing underestimate-so I know this is going to cost £1 billion, but I am going to put £0.5 billion in this return, which is a very serious accusation-or, to what extent is it inflation during the period of procurement, and then inflation at the point that you referred to, which is: I am now buying software and I have to keep going. How much of the ultimate inflated cost arises during that period?
Bernard Gray: I’ll come back to your point about the defence industry’s profitability, but all those forces are at work, so they all have a role. As it happens, although I am not a qualified investment analyst, I would stake some money on the fact that the defence companies are not some of the most profitable companies in the world, and if you look at it as a return on capital employed, given their capital intensity, I suspect that they are not particularly desirable from that point of view.
Q50 Ian Swales: We’ll delete that one from the record, then.
Chair: They do not do as well as the banks, Ian.
Bernard Gray: Well, in my own previous sector there are some media companies that I could think about that are an order of magnitude more profitable as a return on capital employed. The reason for stopping on that point is to try to correct the perception that this is just some kind of gravy train.
The truth of the matter is rather different, which is that they are constrained, by and large, to single-digit profit elements out of 20plus-year programmes, in many cases, with very high working capital and capital employed components, and significant risk. It is not an industry that I would look at and say is immediately attractive. From my own recent background in private equity, it is interesting that not many of them are owned by private equity, which also tells you something about the apparent desirability of that. This is only to say, let’s not run away with the idea that they’re making bucket loads of cash from a soppy Ministry of Defence, if you like; that’s not the way it is.
It is clearly the case, however, that they will wish to both influence people in the direction of their product set, and also to say, "If you spend a bit more, you will get this, that or the other more capability." If you have ever had builders round to your house, they’ll say, "Do you realise, for only another £5,000 we could do this and it would transform this project. While I have got the floor up, I might as well replace all of the heating pipes." One gets that inevitable, "It is much cheaper if we build it in at the beginning than if you come back and ask me for it later," kind of debate, which tends to promote a higher specification product at the beginning. They will definitely be talking to the specifiers trying to influence that outcome. The Ministry of Defence does try to regulate that quite carefully, but, again, it is like the sea-they will be trying to do that.
The allegation, if it is one, that says that individual armed forces have a systematic incentive to underestimate the cost of equipment is true. Let us think about the problem as a general proposition. Imagine that I am in armed service A, and I underestimate the cost of my project-let’s say, just for simplicity, they only have one project each-and I estimate my project is going to be £500 million, when it is actually going to be £1 billion, and we are managing a total defence budget. Then, when it turns out to be £1 billion, which is actually the number that people should have first thought about, I am probably not going to have to pick up the full cost of that £500 million increase; I am probably going to visit part of that cost increase on services B and C.
Services B and C are perfectly well aware of this fact, and so therefore they also have an incentive to underestimate the cost of their equipments, because they will want to get their retaliation in first. So there is a game theory problem inside of here, which says it is in the interests of each of the individual participants to cheat, and they are doing something that is rational from their perspective.
Q51 Ian Swales: The game theory rests on the fact that they will remain on the pitch, doesn’t it? One of the things that we constantly feel in this Committee is that there do not seem to be personal consequences for failure in the way that there would be in the private sector.
Bernard Gray: It is not-
Q52 Ian Swales: If a civil engineer estimated the cost of a motorway out by a factor of two, my guess is they would not remain in the company that employed them.
Bernard Gray: That is a different question, okay? The point I am making is that we all have to deal with the reality that there is this pressure and incentive there, and the question for all of us is how we deal with it. My argument about this is not the accountability of individuals, if one can appropriately brigade it up as appropriate, it is more about the fact that shooting the odd random person probably will not solve this problem.
What one needs to do is recognise it is a problem, and figure out how, from a systematic point of view, one is going to try and constrain it-one can never solve it, because that pressure will never go away-to try and minimise it, and to make sure that one does have accountabilities in the right places, so you can hold people to account. That is my kind of approach.
Q53 Austin Mitchell: Account must be taken of the fact there is a conspiracy between the brass, who want the toys, and the suppliers, who want to flog them; both conspire to make the thing more attractive, so it can be sold.
Bernard Gray: Well, they certainly conspire-one man’s conversation is another man’s conspiracy, I suppose, but they certainly talk about it. I would put it that they both have an incentive to be optimistic about what the cost of the programme is going to be at the beginning.
Q54 Chair: And the budget? Optimistic about the budget. That is what we constantly find; they always think somebody will come and rescue the budget.
Bernard Gray: Well, I do not know that the companies think that.
Q55 Chair: I think they-well, BAE tends to think, you know.
Bernard Gray: I could not speak to that. I have knocked around this place for quite a long time, and I am not specifically aware-I think the problem is more that people tend to think about it in individual components. Very few people are charged with looking at it at the aggregate level. They are all trying to think about, "All I need to do is achieve a bit more money for my thing, and that will be okay." What they are not fully hauling aboard is that everybody is thinking the same thing. I am not sure that the conscious mind operates at that system-wide level, to say that somebody is going to come and rescue the budget.
Q56 Austin Mitchell: There is another factor to be taken into account. Your plans on rationalising the structure seem admirable, but you have got to allow for improvisation, which can be a considerable skill. It depends on the warlike propensities, or lack of them, of the Prime Minister of the day.
If we are going to embark on a large number of wars, then you will find when you get in there that the equipment you have been buying for another kind of war is no longer suitable-that the helicopters cannot fly in heat and dust, or whatever, and that the vehicles you have bought for conditions in Northern Ireland get the troops blown up with improvised explosive devices-and you have got another series of big bills, which have got to be paid and decided quickly. You can never effectively control the budget, because of this need for improvisation depending on the warlike propensities of the times.
Bernard Gray: You certainly cannot perfect it. I agree with you. One can try to do better or worse. Inevitably, one is projecting into an uncertain future, and I think people do try to make the best plans that they can about the future prospects they think they face. I am reminded about the whole thing about the snow that happened before Christmas, partly because it is a particularly painful reminder to me at the moment. There is also: to what extent do we choose to invest against lower-probability events? We could have sat in this room 10 years ago and said, "What is the probability that we will have 10,000 people fighting in Afghanistan?" Those who put their hands up probably would have got a bit of an askance view from everybody else in the room-"Didn’t the Russians just leave there?" kind of thing.
Inevitably, life has a way of throwing up the unexpected, and the question is, from a balance of investment point of view, do you put the bulk of your investment behind what you think the most probable things are, bearing in mind you may well be wrong? Or do you spread it out very thinly across all probably outcomes, and therefore not have much of anything to go with? Or do you invest significantly more money, so that you say, "Well, I can get going on day one with anything to tackle any circumstance?"
To my mind, it is about somewhere in the middle that says they have a core programme for the Armed Forces, which roughly speaking delivers the centre of gravity of what they think they are going to need, and if we are going to not give them as much money as we might otherwise do to cover all risks, we are going to accept that, if some other risk turns up that was not anticipated, we are going to have to give more money in order to fulfil that. That seems to me a fairly rational decision.
Q57 Austin Mitchell: Just one final question: how do we ensure value for money in the cuts that are made as a consequence of the Defence Review? Just instancing the Nimrod cancellation, which seems to be rather controversial; they had a picture of Nimrods being vandalised, torn apart, in the papers over the weekend. How is value for money taken into account with the cancellation of a big project like that?
Bernard Gray: Well, to a certain extent one has to, however undesirable it may be, accept the rational economic concept of sunk costs. Money is spent, and it is gone, and whatever you do you are not going to get it back.
Q58 Austin Mitchell: But the Nimrod is there.
Bernard Gray: I am just saying that the first phase of the proposition is that, in order to make judgments about these things, you have to accept that you are where you are when a decision comes up. You can have a debate-and you may well, for all I know-about whether we should have got to that point, but at the point of making decisions in October of this year, or October of last year, the appropriate approach to that is to say, looking forward from here, with the money that we have got, what is the appropriate thing for us to keep, and what are the appropriate things for us to drop?
And the SDR came up with a set of assumptions about that, and I think, for my money, decisions like the Nimrod showed that people had thought about this from a rational perspective. They had said, "What capability do I get for investing further money in this over the course of the next 10, 20 years?" versus, "What could I get for putting the same money somewhere else?" I do not suppose anybody thought it was going to be very attractive to have spent £4 billion on something and then scrap it, so they put that out of their minds, and said, "Going forward from here, where is the best place for us to invest this equipment programme?" Then they made some choices about that.
Q59 Mrs McGuire: Do you think you are too much of an idealist for this job?
Bernard Gray: Well, that’s a touching-most people describe me as-
Q60 Mrs McGuire: I think your analysis is pretty rational, but given the history of defence-not just in recent years, but if you just look at the history of defence and the MOD, and its various manifestations-I am just wondering, the analysis is robust, but you have already pointed out in your conversation with us this morning the pressures, both internally and externally. How does an idealist cope with all those pressures?
Bernard Gray: Well, few people who have done much business with me would describe me as a fluffy bunny.
Q61 Mrs McGuire: I do remember you as a special adviser in the MOD, so I know you are not a fluffy bunny.
Bernard Gray: This is a contact sport. I expect, behind closed doors, to express myself with reasonable clarity. I am a pragmatist, actually. My perception of all this is, in five years’ time, is this going to be perfect? No, because life is not of that nature. Do I think I stand a decent chance of making it better than it otherwise would be, working with colleagues and trying to persuade people to look at it a different way-and I think I have made some progress in persuading people to see things differently than they saw it before-then, yes. If I have made some contribution towards the team effort of defence being in a better place than when it started, then I will take a few knocks along the way.
Q62 Chair: It is always invidious to ask this, but what are the three things at the end of the five years you would like to see different?
Bernard Gray: I’d like to see good balance in the programme. I’d like to see higher levels of skill and management flexibility inside of DE&S for it to be able to get on with its job better.
If I may offer a personal observation, some of the people who have appeared in front of this Committee and others have taken the rap for things that were not their fault and that they had no real power to affect, and I feel for them about that. Therefore, one of my drives is to try to say, "Let’s try and get more control of what is necessary so that you can at least be fairly judged.
The third thing would be greater transparency about the programme, so that everybody can talk from a more common baseline about what is actually going on-what is good and what is bad, because that demystifies it a lot.
Q63 Mrs McGuire: How then do you deal with the accountability for legacy issues? Some of the things that we have been speaking about this morning are actually legacies, not just from the last Government, but, indeed, I think Nimrod-
Bernard Gray: Nimrod was-
Q64 Mrs McGuire: -was Mrs Thatcher, "We must have it," and-
Bernard Gray: John Major.
Q65 Mrs McGuire: Right, John Major. I think, actually-
Chair: The Typhoon business.
Mrs McGuire: Anyway it does not matter: it started a long time ago. So how then do we have accountability for those legacy issues, if you are almost encouraging us to look in four or five-year blocks?
Bernard Gray: I have no great illusions that I will be beaten up in this Committee for the performance of legacy issues. In some sense, the performance of those legacy issues will be made worse by the cash pressure currently going through the MOD and the rest of Government. It is part of the knocks that I dare say I will take in all this process, and I simply have to go away from this and say, "Well, do I think they were fair about that or were they just treating themselves to a good day out?" Then I will let the public decide who was right about that.
Q66 Mrs McGuire: Can I just indulge, Chair, just a wee bit longer? We tend to talk in terms of the big projects-Astute and Nimrod and all the rest of it-but some of the procurement processes within the MOD actually mitigate against, dare I say it, sensible purchase away out there where our troops are.
I’ll give you a "for instance": when I did the armed forces scheme, one of the things that the Chief Petty Officer complained about was the fact that he could buy a bucket in Key Largo-we were in the Caribbean at the time; one has to do these things in the interest of Parliament-
Bernard Gray: Never had the pleasure myself. I understand it is nice.
Q67 Mrs McGuire: He had to buy some buckets, which would have cost him the equivalent of 40 pence. Had he to go through the normal procurement process, those buckets would have been a charge of £1 against his budget, and nowhere could he get authority to spend £2 on four buckets.
Is that sort of central control still there, and do you see it as part of your job to devolve responsibilities for what is, effectively, almost petty cash purchases at the front line? They would make that Chief Petty Officer’s life far more pleasant, and enable him to fulfil the objectives that he had, which was to make sure that there were enough buckets to mop the decks?
Bernard Gray: I understand the general point. I kind of suspect that within that ship’s overall budget somebody did have the flexibility to allow somebody to do that, and I have been on other ships where people have made tactical acquisition decisions in order to solve particular problems without any great difficulty.
Q68 Mrs McGuire: Dare I say it, you are almost then saying that, if you can finesse it or get a way round it, you’re almost encouraging-
Bernard Gray: No, I am not saying that. I am saying that-
Q69 Mrs McGuire: He did make the purchases, I should say to you. He did make the purchases of the buckets, but he did say to me, and I think Chris would verify that some of those stories are still there-it is about the central control of the procurement.
Bernard Gray: Yes. I am accepting the general thrust of your point. I am just trying to make one refinement. Not all of this flows down from my area particularly. For example, the operation of existing ships will be managed under fleets budget, and therefore some consumable components that they are operating around all that will flow from some of the things that they do.
But the more general point that arises is twofold, I think. The first one is, bearing in mind that I have seen contra-indications of this, even if you have a delegated level of authority-for example, the ship has a sort of general-purchase budget of a few thousand pounds a year to do stuff with-how the ship’s commander or ship’s captain will deal with that will vary from ship to ship. Some people may delegate down that responsibility and some may not.
I suspect that some of that flexibility exists in principle; it is just that part of the point of delegating things is that people make different choices at lower levels. Therefore, there is an irony to do with whether delegated authorities really get passed through if you are delegating authority away. What you do, if you’re me, is delegate to the next level or two down, and you’re then encouraging other people to behave differently, but they may or may not.
Amyas Morse: You might be bucketing the system.
Bernard Gray: The second issue that arises is, are you prepared then to allow different outcomes? What do you really want? Do you want something where every bucket in the Navy costs £1? Or do you want us to turn up and say, "Well, there are cases here where somebody bought a bucket for 40 pence, and there was a case where somebody paid £10 for a bucket. How can you justify that, CDM? Surely you do not have any grip on all of this process."
So the tension here is, to what extent is the system prepared to tolerate, not just the Public Accounts Committee or me but the rest of the Ministry of Defence, Government and so on, significant variation as a result of the delegation of authority? It is not at all clear to me where that balance lies.
Q70 Mrs McGuire: I wish I had not mentioned the buckets now.
Bernard Gray: It is always good to make it graphic.
Q71 Mrs McGuire: Well, it certainly caused great irritation, and some of us fed the example in, albeit that the specific might appear to be trivial. However, it identified, certainly from the information we had, that there was a centralisation.
Bernard Gray: Just to agree with you, I am well aware of the frustration that exists about people trying to make rational decisions at lower levels, and being frustrated by a process. All I am saying is that the enabling of that taking of rational decisions at lower levels may give rise to divergent outcomes, and are you happy that it will?
Chair: Again, we are facing that right across Government, as you well know.
Q72 Mrs McGuire: Can I just ask one final question? In the summary of recommendations, you have suggested that the budget be enshrined in law, in line with the French example. Do you think that is a correct parallel? Given the different objectives of the two defence strategies, can you say that in Britain it would be sensible to enshrine in law our defence budget?
Bernard Gray: Well, in a sense we do, in a Finance Act every year.
Q73 Mrs McGuire: But this strikes me as something a bit more forceful?
Chair: 10 years.
Bernard Gray: All I am saying is we do give legal effect-
Q74 Mrs McGuire: Yes, I know that.
Bernard Gray: -to the defence budget. It is just a question of how. My own personal view is that I have seen, on a number of occasions, people hoping that things will get better tomorrow. So they will say, "I do not want to take this difficult decision today, because round the corner aliens may land, more money may come, Britain may strike oil off Somerset or something, and all of our problems will go away. So why should I take this difficult decision today, when some better thing may turn up tomorrow?"
There is another problem that we have not touched on here, and my joke about it is that it is possible in defence to get pregnant at very long range. There probably are people today spending £5 million this year on some project that won’t get seriously going for five years, and will not start spending serious money until the 2020s, but by the time we get to 2015 or 2016, and you’re having a hearing like this, and they say, "Well, we have looked at this, and now we want to stop it," they will have spent £50 million on it or something. You will say, "Well, that is a terrible waste of £50 million of public money-starting something and then stopping it." Therefore, they tend not to stop it. Even if they are going to spend £2 billion on something that they do not want, the embarrassment of writing off £50 million is too much.
All that drives me in the direction of saying that the more clarity you have about what the future looks like, the better. If you can lay down a 10-year budget for the Ministry of Defence, people are then confronted with, "This is what it is, for better or worse. That’s all there is. There is not going to be any more. There aren’t going to be any oil strikes or anything else. That is what you have got to deal with," then you would be in a much stronger position in negotiating people down to a sensible balanced budget.
Q75 Chair: This has been very interesting. I’ll just make two remarks at the end. One is: we will look forward to seeing you in the future. We will admonish you less if you don’t come and try to defend the indefensible to us, and with a bit of honesty. I wish you, really, genuinely well, and I hope that you will be enabled and allowed to make a contribution to the way that we manage our defence budget within the organisation that you have now joined. We will watch that with interest, too.
Bernard Gray: Thank you very much. I hope that we can have a constructive dialogue, and I would like to lay great emphasis on the fact that the flip side of what I have said about all this is that this is a team sport, and there are a lot of people working very hard inside the Ministry of Defence to try and improve that position. I think they deserve credit for that.
Chair: Okay. Thanks very much indeed.
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