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Army Procurement

5.2 p.m.

Earl Attlee rose to ask Her Majesty's Government what use they are making of the Private Finance Initiative and sponsored reserves for the procurement of heavy equipment transporters and other logistic vehicles for the Army.

The noble Earl said: My Lords, I offer a warm welcome to the noble Lord, Lord Grocott, who was introduced in your Lordships' House about three hours ago and is to make his maiden speech shortly. That may be a record. We have a common interest as I believe that we are both interested in industrial archaeology. The noble Lord is interested in steam railways and I am interested in vintage commercial vehicles.

The Question, which arose at short notice, constitutes an ideal opportunity to discuss this matter. I was tempted to talk about tanker aircraft but I shall resist that opportunity mainly due to lack of time. I shall ask about good news, not about something going wrong, or at least not badly wrong. I declare an interest as a serving TA officer and president of the Heavy Transport Association. The REME Museum of Technology, with which I am involved, may be given a tank transporter when it comes out of service. I make it clear beyond all peradventure that I have no financial or other arrangements with any defence contractor. I do not act as a consultant, paid or otherwise.

Heavy equipment transporters are mainly used to move heavy armoured vehicles such as tanks. Your Lordships will be grateful to hear that I shall not weary you with technical details. Suffice to say that these are specialised vehicles designed to carry 60 to 70 tonnes. They are powerful in absolute terms, complex--as one would expect--and they require specialist tradesmen to operate them. High capital cost and technical risk are involved in procuring them.

The Government announced that the fast track consortium would be the preferred, or perhaps very preferred, bidder for the provision of about 90 heavy equipment transporters. Will the Minister explain why only 90 transporters are being bought? We currently have about 120 of the old tank transporters. An armoured regiment has at least 50 main battle tanks or derivatives. Supporting units such as engineers have additional heavy armoured vehicles. In addition, the lines of communication in future operations will be

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much longer than in the old days of BAOR. They can now be measured in hundreds of kilometres. Are we not spoiling the ship for a ha'p'orth of tar? How was the requirement determined? What allowance has been made for attrition that, sadly, occurs even in peacetime? Are we relying excessively on host nation support for future operations overseas?

To date no order has been placed with a contractor. Perhaps the Minister can give us some indication of when that will happen. The procurement project is novel and significant as it involves the PFI--that is reasonably well understood--but also the first significant use of sponsored reserves, which is perhaps not so well understood. We discussed the sponsored reserves during the passage of the Reserve Forces Act 1996. I note that the noble Lord, Lord Judd, is present. He was actively involved in those discussions.

At the time I had two concerns about sponsored reserves. First, I was concerned that we could end up with sponsored reserves who were, to put it bluntly, not proper soldiers; in other words, they had joined the sponsored reserves purely to get a job. I was concerned that if they found themselves involved in a "hot" operation, their motivation might be affected. I was also worried that the sponsored reserves might constitute an attempt to privatise the TA. The purpose of the sponsored reserves was not made specific. I hope that the Minister will be able to allay my fears in that regard.

However, there remains a key question; namely, how much military training will be undertaken by the sponsored reserves? I suggest that two weeks would not be enough but that six weeks would be satisfactory. How much military training does the Minister envisage for the sponsored reserves? I support these developments with the usual caveat that if things go wrong it is still the Minister's fault! I pay tribute to the noble Baroness, Lady Symons, and the relevant procurement team. They will have found it difficult to get certain people to "let go" and to stop interfering with the equipment manufacturer.

For 27 years I have used military equipment bought for all the wrong reasons. It was probably expensive and turned out to be unreliable. It performed poorly and was expensive to maintain. We kept the equipment well past its sell by date as we could not extract money from the Treasury to replace it with something better. The MoD should specify the capability required of the equipment and legal and standardisation requirements. The MoD should not lay down detailed technical specifications. It should leave that to the experts--namely, the manufacturers who have to compete in the commercial environment. If a contractor supplies a defective vehicle, he will bear the financial risk and the financial penalty. The contractor should also be heavily involved in specifying and providing technical but not military training. After all, the contractor understands the equipment far better than the MoD. The same applies to technical and spares support as the contractor has a financial incentive in making sure that the relevant vehicle can be used by the Armed Forces.

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There is one important point for the noble Lord, Lord Bach, to consider. The PFI constitutes partnerships between the MoD and contractors. Partnerships work best when he who can best manage a risk carries it. In my experience the MoD is extremely bad at managing technical risk. On the other hand, contractors are very good at managing technical risk. Therefore, they are best placed to carry that risk. The problem is that contractors are poor at dealing with uncertainties, for example, the rate of utilisation of a vehicle. They work on a worst case scenario for each uncertainty. If they do not do so, they could go bust if their worst fears were realised for each uncertainty.

On the other hand, the MoD is in a good position to manage risks arising from uncertainty. I urge the Minister to take all possible steps to reduce uncertainties for defence contractors in order that the contractors can offer best value.

I have two points of caution. My first refers to third party revenue. I believe that the duty of the Minister is to provide for the defence of the realm and not to be a plant hire or heavy haulage contractor. I believe PFI to be desirable because the risks will be taken by those best placed to manage them; and it is not necessary to find the capital cost in one financial year. The PFI route, therefore, should not be rejected because there is no third party revenue.

My second point of caution is about equipment disposal. One of the advantages of going down the PFI route is that the equipment can be disposed of at the optimum point in its life cycle. That will minimise whole life costs. When equipment is not obsolete, the contractor can realise a good price for it if he offers it for sale as a fleet complete with a spare parts package, specialised tooling and so on. However, under a PFI contract, if the Minister buys the equipment at the end of its useful life, the support costs of the equipment would rise exponentially. Fortunately, neither I nor the Minister will be actively involved in disposal of equipment because that will take place in about 20 years. However, as a principle of PFI we do not want to make the mistake that we made with the Mercedes Benz transporter in about 1997 or 1998. We bought the vehicles at the end of their useful life and then had to buy engines, gear boxes and so on.

I turn to the future vehicle programme. It consists of the future cargo vehicle, the future fuel vehicle--the Minister will be aware it is desperately required--and the future recovery vehicle. Can the Minister elaborate on these programmes and explain why PFI has been rejected? Having decimated the Defence Evaluation and Research Agency at Chertsey, how will the Minister be able to have a technical assessment undertaken of these vehicles?

In conclusion, I support the Minister's approach on the tank transporters. I hope that he can answer my questions about that project. However, I cannot understand his rejection of PFI for further vehicle procurement.

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Normally, with a maiden speech one is able to congratulate the speaker. With the procedure today, we cannot. Perhaps we may take it as read that if I were able to do so, I should congratulate the Minister on his maiden speech.

5.11 p.m.

Lord Wallace of Saltaire: My Lords, I, too, welcome the Minister to this Chamber. I hope that he will not find it too much of a shock to discover the exaggerated courtesy of this Chamber. He will rapidly discover that the greatest insult is to say, "I'm not sure that I entirely understood what the noble Lord said". We look forward to the noble Lord's response, and to his learning the elaborate courtesies which we bat around the Chamber.

I have three questions. First, I believe in joined-up government and a joined-up defence policy. We know that the Government are committed to it and to closer European defence co-operation. It seems odd that they have chosen on this occasion an American as opposed to a European vehicle; and that they have conducted this entire experiment without apparent consultation with our European partners with whom we are most likely to be engaged in joint operations in the coming years.

On the tanker refuelling aircraft question, to which the noble Earl, Lord Attlee, referred, the same is true. It is even more the case if we are engaged in joint air operations. We are conscious that over Bosnia and Serbia the British and the Americans provided the substantial disproportion of refuelling aircraft. If one is to talk about the need for a large capacity, it is clearly sensible to do so on a joint basis rather than to pretend that we are purely on our own. In making a long-term commitment, would it not have been wise to have consulted to see whether there were efficiencies to be achieved jointly with others?

Secondly, I thought that most land armies were moving away from reliance on heavy equipment and heavy tanks. A heavy tank was the vehicle for conventional war in central Europe on the north German plain. It has also been used in the desert in the Gulf War. It is not a vehicle for peacemaking or peacekeeping. The current Bush Administration defence review in Washington raises the important question of whether equipment that is not easily air transportable is still wanted. Lighter armoured vehicles give much higher mobility. Many of us remember how long it took to get the British Army's heavy equipment from Germany to Bosnia at the start of deployment there. It was a long process. The tanks could not go through the tunnels under the Alps and had to go by sea. That took about a month. The question is how long the British Army will want to maintain the Challenger 2 force. Whether we need it over the 20-year period in which we are investing in these heavy transporters is also relevant.

Thirdly, in briefing that I have received I note a number of references to a "pathfinder" decision for the future of the private finance initiative and the concept of sponsored reserves. We know that Her Majesty's

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Government are not committed to maintaining a divide between the public and the private sector and believe in what works. Where the private sector works better, they believe that it is fine to go along with it. I have read Adam Smith. In the 18th century many believed that the provision of armed force through private contractors was the best way forward. The British Army went to the Napoleonic wars on the basis that people raised battalions and contracted with the government. Letters of marque were issued to privateers to sink foreign ships. Even as late as the Crimean war an independent contractor proposed that, for a sum, he would contract with the British Army to lay siege to and conquer Sebastopol. Unfortunately, that contract was rejected. It might have been better achieved by a private contractor than by the grossly inefficient armed forces which fought the Crimean war.

How much further do the Government expect to go in terms of the private finance initiative in the defence field and the sponsored reserves concept? A White Paper on mercenaries exists somewhere in Whitehall. We were promised that it would be published six months ago. It was not published: I understand that there were those in Whitehall who pointed out that the definition of a mercenary is difficult. Some argue that a private contractor contracting for the Government might be considered a mercenary. Sandline, an efficient private company which has undertaken a number of useful activities in particular for the Government of Sierra Leone, is far more efficient in manpower than the large and grossly inefficient UN force. That might take us back to the use of private force following free market principles as a means of delivering supporters in war.

We could go further. We know that the Defence Medical Services are extremely short of manpower and equipment at present. Can we envisage a Private Patients Plan field hospital or a BUPA field hospital as a sponsored reserved concept; or even perhaps the Tesco Fusiliers or the Sainsbury's Light Infantry as a reserve regiment? The noble Earl, Lord Attlee, worries how far the TA will in effect be privatised progressively as one goes more into the sponsored reserves concept.

I tease a little, but there is a large question about how far, in what has become one of the central issues of government--the monopoly of force by public authorities--we might go back towards the private sector. Free market principles require that when the private sector can deliver force better, we should accept that. The Government are committed to free market principles, so we need to know how far the idea is to be a pathfinder for the private finance initiative and the sponsored reserve concept and if so, how much further that might go and whether there are boundaries beyond which it will not go.

5.20 p.m.

Lord Grocott: My Lords, I am grateful to the noble Earl, Lord Attlee, for raising this short debate, not just because he has chosen an intrinsically important subject, but, on a personal note, because it gives me an opportunity to make my maiden speech within three

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hours of being introduced. That goes against all my rules of conduct, which are to spend some considerable time listening and watching whenever I enter a new environment rather than opening my mouth. I am afraid that the pressure of the Government Whips Office is so relentless and unremitting that I find myself responding to this debate today.

Speaking from the Front Bench is a great responsibility, but it is made much easier by the genuine warmth, friendship and welcome that I have encountered from so many people since my journey a few yards down the corridor. I knew a lot of people before I came here and they gave me a nice welcome, but lots of people whom I did not know so well have also given me a nice welcome. That is heartwarming for someone preparing to make their speech.

This is described as a maiden speech, although it is my third maiden speech--if it is possible to be a maiden on three occasions. I first made one when I became the Member for Lichfield and Tamworth in 1974. In 1979, the electors of Lichfield and Tamworth decided that I should probably spend more time with my family. I spent eight years out of the House and then made another maiden speech as the Member for The Wrekin in 1987. I am now making my third maiden speech. The House will be relieved to hear that, under the terms of the Life Peerages Act, it will have to be my last maiden speech.

I mention The Wrekin and Telford in particular in this debate. We all know the enormous importance of our defence services and the debt that we owe to those involved in them. I have had the privilege to represent a constituency in which one of the major employers is still the Ministry of Defence at the Donington ordnance depot, which has more than 1,000 employees involved in storage and distribution. Another 1,000 are employed in the Avro workshops. Nearby there is also an important defence manufacturer, Alvis, which employs more than 400 people.

That has made me acutely conscious of the commitment and dedication that those employees--many of whom are friends of mine--have shown to their work. In many cases, generation after generation from the same families--father to son and mother to daughter--have worked in those shops and storage depots for more than 60 years. I am well aware of their effort, commitment and responsiveness to crises such as the recent ones in the Gulf and the Balkans.

I shall always try to be accurate and honest with the House. I would be less than frank with the House if I did not say that, important though the issue is, I am not certain that the heavy equipment transporter programme would have been my chosen subject for my maiden speech. I shall answer a number of the questions that the noble Earl, Lord Attlee, and the noble Lord, Lord Wallace, have raised.

I shall begin with some background. On 24th January this year, my noble friend Lady Symons, then Minister for Defence Procurement, announced to the House the decision to select the Fasttrax consortium, led by Brown & Root Ltd, as the preferred bidder for the private sector-financed heavy

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equipment transporter programme. That was the first programme to seek a solution under the Government's private finance initiative for an operational combat support vehicle with a significant proportion of the operational capability being delivered by sponsored reserves.

I am very much aware of the expertise of the noble Earl, Lord Attlee, in this area. I pay tribute to him and to other members of the Reserve Forces, which constitute a significant part of the country's Armed Forces. They make a crucial contribution to our military capability and to the United Kingdom's reputation as a force for good in the world. I am also grateful to the noble Earl for the kind remarks that he made about my speech before I had made it.

Before I speak about the heavy equipment transporter programme in particular, I shall make a few general comments about sponsored reserves, which I hope will answer some of the noble Earl's questions.

Under the sponsored reserve concept, a service normally provided in peacetime by contractor staff is provided on operations by staff drawn from the contractor's workforce who are reservist members of the Armed Forces. The sponsored reserve concept envisages letting contracts for services on condition that the contractor maintains in his workforce an agreed element who have volunteered to become members of a reserve force.

Sponsored reservists are therefore volunteers in the same way that regular members of the Armed Forces are volunteers. Just as for regulars, a sponsored reservist's decision to join the Armed Forces will be based on many reasons, including pay and conditions. That is how the Government view sponsored reserves. They are professionals in terms of the civilian skills that they obtain from their position as contractor staff and the military skills derived from their military training as members of the Armed Forces.

Sponsored reserves are legally required under the Reserve Forces Act 1996 to undertake training with their parent reserve force both in peacetime and when called out. Just as for regulars, they are subject to the Service Discipline Acts and service regulations while serving with the Armed Forces. However--this is an important point--in contrast to the position of conventional reservists, sponsored reserves can be called out routinely whatever the level of crisis, under the direction of the Defence Secretary through authorised officers.

The noble Earl also asked about dates. We have always intended 2003 as the date when the programme of recruiting sponsored reserves comes into operation. I shall write to him with any further details that he requires.

In the mid-1990s, it became clear that the existing tank transporter, the Scammell Commander, would soon reach the end of its economic life. It was becoming increasingly unreliable and unable, legally, to carry the Challenger 2 main battle tank at its full training weight on UK or European roads.

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The Defence Procurement Agency--or Procurement Executive as it was then--was tasked with the procurement of a replacement vehicle.

In line with the then Government's policy of considering all capital asset procurement for the private finance initiative, the procurement team considered how the project might be procured as a service rather than as a one-off purchase of equipment. The view was taken that, under PFI, it would be possible to transfer a greater level of risk and responsibility to a private sector service provider in order to achieve greater value for money for the taxpayer but emphatically not at the expense of operational effectiveness.

In order to facilitate that, the project asked industry to consider the employment of sponsored reserves. It received an enthusiastic response from bidders. Since then, a large amount of detailed close working between the Ministry of Defence and industry has led to the proposed PFI contract, which is now subject to final negotiation with the preferred bidder. I believe that a number of the points raised by the noble Earl about the nature of the relationship will be included in those discussions and negotiations. Indeed, as the noble Earl said, the main point that must be emphasised in relation to the PFI in these circumstances is that it is a partnership; it is on-going, considered and reviewed. That is, of course, the best security that we can offer to anyone who has concerns about the programme.

Under this contract, it is proposed that the contractor will be fully responsible for the provision of the whole transporter service, including managing the equipment, spares and manpower to deliver the service to the agreed performance levels throughout the contract period. In peacetime, the contractor is solely responsible for all movements of loads. For all operations, however, one-third of the operational capability will be provided by sponsored reserves employed by the contractor.

The sponsored reserves personnel will be trained by the Army. They will be fully integrated into the command structure and affiliated to each of the three existing tank transporter squadrons. On a day-to-day basis, the sponsored reservists will work and train with the regulars and, if necessary, they will then deploy with the squadron to support other operations. I believe that the concern expressed by the noble Lord, Lord Wallace, in relation to mercenaries--it is an important point--is dealt with. Their training, responsibility and involvement will be exactly as they would be if they were regular soldiers. It is extremely important to emphasise that point. I am afraid that I cannot deal with his point about Adam Smith--it is a little before my time.

The proposed contract offers significant advantages to the armed services and to the taxpayer. Making the contractor fully responsible for the provision of the peacetime service gives commanders the flexibility to release regulars to undertake core military activities. What is more, risks associated with the design, construction and maintenance of the vehicles have been transferred to the contractor.

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From a financial perspective, the PFI offers significantly better value for money than does a conventionally procured solution, with much of the saving being achieved through the contractor's ability to use his workforce to generate third party revenue when his staff are not required for military purposes.

As this project has been taken forward, a key requirement has been the need to maintain appropriate levels of operational effectiveness. In particular, by integrating sponsored reserves with regular soldiers, and through their gradual introduction, the Ministry of Defence has sought to achieve continuity of military skill and capability. Moreover, the contractor intends to recruit ex-Army regulars, many of whom welcome the opportunity to continue to serve their country but as reservist members of the Armed Forces, pursuing civilian careers and developing civilian skills. That was, and is, much in evidence in Donington, where, frequently, at the end of their military career, people move into the civilian workforce using the skills that they have deployed throughout their professional life.

As a further safeguard, the Army will have the capacity to influence the contractor's selection procedure and have the right to vet personnel during their initial selection, thus ensuring that the right calibre of people is recruited.

I turn to the subject of other logistics vehicles projects, raised by the noble Earl. Although the Defence Procurement Agency considered combining the use of sponsored reserves and PFI in other vehicles, the heavy equipment transporter programme is the only project which can take forward both concepts. Although the DPA explored operating concepts for other projects within its existing logistic vehicle programme, it found little scope for the use of sponsored reserves. That is because the types of vehicle considered are driven primarily by soldiers whose principal military roles and training are not as drivers

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but as infantry, gunners, engineers, signallers and the like. Put simply, in exploring these projects with industry, the DPA was unable to develop the type of innovative and cost-effective solution that it was able to achieve with the heavy equipment transporter.

In conclusion, our approach to the heavy equipment transporter programme is indicative of our approach in general, to which the noble Lord, Lord Wallace, referred. It is one of using sponsored reserves when there is a precise case for doing so in relation to a specific project. We are not pursuing the idea for its own sake. Where the sponsored reserves concept offers us potential benefits, as is the case with the heavy equipment transporter, our approach is to implement sponsored reserves only when the risk to operational effectiveness is totally manageable within the defence programme. Therefore, I commend the programme and its use of sponsored reserves to the House.

Finally, I repeat my thanks to the noble Earl for raising this issue and for allowing me to make my maiden speech. I also thank Members of the House for the patience with which they have listened to my remarks.

Lord Burnham: My Lords, before the noble Lord sits down and with the leave of the House, perhaps I may breach all conventions of the House and of Unstarred Questions by congratulating him on his maiden speech. It is the pleasant convention that the following speaker always congratulates and thanks a maiden speaker. On this occasion, there is no opportunity so to do. I believe that one matter made the noble Lord's life more difficult than is normally the case for a maiden speaker: he had the Minister sitting beside him passing him notes the whole time. Therefore, I again congratulate the noble Lord and hope that we shall have the opportunity to hear him many times in the near future.

        House adjourned at twenty-two minutes before six o'clock.

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