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Proliferation in ParliamentBack to Proliferation in Parliament, Winter 2008 Westminster ParliamentPublic Accounts Committee Inquiry on the United Kingdom's Future Nuclear Deterrent CapabilityREPORT BY THE COMPTROLLER AND AUDITOR GENERAL THE Please note: The transcript is not yet an approved formal record of these proceedings as neither Members nor witnesses have had the opportunity to correct the record. Examination of Witnesses Witnesses: Sir Bill Jeffrey, KCB, Permanent Under Secretary of State, Dr Paul Hollinshead, BSc (Hons), PhD, MBA, OBE, Director, Strategic Requirement, Mr Guy Lester, Director General, Equipment, and Rear Admiral A D H Mathews, CB, Director General, Submarines, gave evidence. Q1 Chairman: ... Sir Bill, given your experience with the Astute submarine, if we look at box three, "Problems associated with the Astute submarine programme ...", we see there that it was hugely over-budget, 40% over budget. It has slipped by three years. How are we going to avoid the same problems occurring with the Trident replacement system? Sir Bill Jeffrey: Although, as you say, it is unusual for your Committee to tackle a project like this as early as this, I never thought I would hear myself say this but we very much welcome this as well. Of course, the Astute project is one of those longstanding projects in our portfolio which have been very much delayed and subject to cost growth. In a short answer to your question, we feel we have learned the lessons of that. In a slightly longer answer, if you look at box three, the reasons for why Astute went long - slow contract negotiations and over-estimation of how much of this we can realistically transfer to our suppliers, problems with the computer assisted design and crucially - I think my colleagues would endorse this - the loss of key skills and the gap between the end of the Vanguard class and the beginning of the Astute class - in each of these areas I think we are well aware of the risks. We believe we are managing them successfully. Q2 Chairman: You cannot make a mistake on this, can you, because your existing submarines run out of time in 2023. Your existing submarines apparently have not missed a day since 1068. Sir Bill Jeffrey: That is correct. Q3 Chairman: There has not been a single gap in our nuclear deterrent. It is not like other defence systems where you can patch them up; you can put them to sea and hope for the best. You have to have these new submarines in perfect condition. 16 years sounds a lot of time, does it not, but it is not a lot, is it, for a submarine of this complexity? Sir Bill Jeffrey: There was some question, at the time of the White Paper and the parliamentary debate, as to whether the decision was in fact being taken too early. We have felt throughout that time is quite tight, although as you say, Chairman, it seems a very long way off. The thinking in the White Paper and in all our planning at the moment is that we can extend the Vanguard class by five years which would be quite a normal period of extension. It is quite possible that it could be extended for longer. Q4 Chairman: When could you conceivably extend it to? Sir Bill Jeffrey: We could not say. We are looking at it. What I was about to say was that any further extension would inevitably involve extra cost and risk. The thing about these very complex nuclear submarines is that the longer you keep them in service the more out of service they need to be for purposes of maintenance etc. The short point is that we are not banking on any extension beyond the five years. All of our efforts at the moment are driven by the 2024 in service date. Q5 Chairman: One of the big risks is in the missile programme, is it not? That is in US hands and that apparently relies on exchange of letters between President Bush and Prime Minister Blair. Obviously they are no longer with us. Sir Bill Jeffrey: President Bush is, I think. Q6 Chairman: The US is not planning to finalise the design of the shared missile compartment until after we need to finalise the design of our submarines. How can we meet the timetable? Is there going to be a problem there? Sir Bill Jeffrey: This is why the discussions between us and the Americans before the White Paper was published and since then are so important. We are joining with the Americans - and part of the exchange of correspondence was the President agreeing to our doing so - in the plans to extend the life of the D5 missile to around 2042, when the US Ohio class submarines are due to go out of service. Because of the phasing of the introduction of the next generation of our deterrent submarines, that will be part way through their lifetime, so we need as good an assurance as we can have. The decision the Americans may eventually take on the success of the D5 missile does not leave us with compatibility problems. In that correspondence, I think there is as good an assurance as we could have that, in the language of President Bush's letter, we would have the option of participating in any future missile programme. Any successor to the D5 would be compatible or capable of being made compatible with the launch system that we will be installing into our successor deterrent... Q9 Chairman: I want to ask you about that. This is mentioned in paragraph 3.2 where agreement with the Cabinet Office is involved and the Foreign Office. Who ultimately takes the big decisions? Where does the buck stop? Is it you? Who is responsible to us for this thing if it goes over time or over budget? Presumably it is you? Sir Bill Jeffrey: That is me. I am responsible to this Committee as I
am for all expenditure within the Department. The big decision clearly
was the one taken at the time of the White Paper and that was taken by
the Prime Minister and his Cabinet colleagues of the day. There is still
an extent to which this programme, because it resonates in the way that
it does and brings in issues of foreign policy as well as purely defence
issues, is of interest to Number 10, the Cabinet Office, the Foreign Office
and others. We certainly need an SRO position at the centre of the organisation
who can see not only all the MoD connections and have effect on them;
but who also is well placed to plug into other parts of Q10 Chairman: I was worried to read in paragraph 4.5 that your Department accepts that the White Paper cost estimates are not sufficiently robust to provide an accurate baseline against which progress can be measured and a sufficiently detailed cost model which can be used to manage cash flow. When are your costs and timescale estimates going to be accurate enough for us to be able to measure progress? Sir Bill Jeffrey: The cost estimates in the White Paper were there because it seemed essential in terms of public confidence to be giving a broad indication of what we thought this programme would cost. They are now being refined and part of the intensive work that is going on now is to refine them as we understand better the design of the successor deterrent. When we come to the point of Initial Gate, which is expected to be next autumn, we intend to have a better taken on costs. Q11 Chairman: These estimates are being refined, not transformed? Sir Bill Jeffrey: Refined, I would say, yes. Q12 Chairman: Trident came in on budget, did it not, but it was a much bigger US element and there was an exchange rate working in our favour. You cannot rely on this sort of thing, can you? Sir Bill Jeffrey: We cannot. Q13 Chairman: There are many imponderables. Sir Bill Jeffrey: We must find what we can in this area. The fact is that Trident did come in, broadly speaking, to cost and on time. Q14 Chairman: You have many commercial challenges. These are dealt with in 5.7. The trouble is that your contractors know exactly how much money you have. They know that it has to come in by a certain date. They have you over a barrel, have they not? Sir Bill Jeffrey: I would not put it as starkly as that. It is certainly
the case that the defence industrial strategy makes it clear that these
are assets that we would want to generate and retain onshore in the Q15 Nigel Griffiths: This project has already had its first delay. It is six weeks late. Is this setting a pattern? Sir Bill Jeffrey: I do not personally recognise the six week delay figure. Rear Admiral Mathews: It is a six week delay to the concept phase, because we were slow standing up the project team. We had absolutely clear instructions that we were to only do that once the decision had been made in Parliament to proceed. We are now holding programme and our intention is to catch up by the time we get to Initial Gate. Q16 Nigel Griffiths: I am concerned that 2.7 is clear. "During 2008 the concept phase slipped by six weeks." You do not recognise this. How late was the project's sister programme, the Astute submarine? Sir Bill Jeffrey: At the equivalent stage? Q17 Nigel Griffiths: Now. How late is it? Sir Bill Jeffrey: As the Report brings out, the Astute is much delayed. The original ISD for the first Astute boat was June 2005 and we are currently forecasting later this year, I think. Q18 Nigel Griffiths: When the Report was published, it was three years five months. Now that looks like three years six months/seven months. What has been the overspend on this sister programme on the Astute? Sir Bill Jeffrey: First of all, I should correct an error into which I slipped a moment ago. It is not later this year; it is during the course of next year that we are expecting the first Astute boat to be in service. The cost at approval for Astute in 1997 at current prices at that time was about 2.5 billion for the first three boats and the current estimate is 3.8 billion. Q19 Nigel Griffiths: That is a 47.3% cost overrun and a three years six months or so delay. Can you go to table two on page 12? Can you tell the Committee what the impact of that delay of three years five or six months would be likely to be on that time line? Sir Bill Jeffrey: If we had such a delay, it clearly would impact very severely on our time line. As the Chairman's opening question illustrated, we are currently driving as hard as we can towards 2024. As I said in my response to him, we believe that the lessons of the Astute programme are ones that we have learned and ones that the general, commercial and procurement approach we are taking to this are capable of addressing successfully. Q20 Nigel Griffiths: If that took this programme to 2027 or beyond, how would you plug the gap? Sir Bill Jeffrey: I am very reluctant, if I may say so, to reply to a hypothetical question because we are not planning to suffer that sort of slippage. As I said at the beginning, it is conceivable that the Vanguard class could be further extended beyond 2024 but we are not counting on it. There is work going on at the moment to assess what the implications would be were it to prove necessary so to extend it. Q21 Nigel Griffiths: I cannot imagine you ever saying that you were counting on it. What sort of problems has the Ministry had bringing in major projects on time? Sir Bill Jeffrey: We have had the problems with Astute that you alluded to earlier. Q22 Nigel Griffiths: How late was the type 45 destroyer? Sir Bill Jeffrey: The type 45 destroyer also is one of these projects that has suffered significant delay over time. Q23 Nigel Griffiths: How late is the Nimrod maritime reconnaissance aircraft? Sir Bill Jeffrey: Ditto. I accept that. Q24 Nigel Griffiths: I think that was seven years. The question is hardly hypothetical. There would be concern that if you go beyond 2024, which seems to me to be a tight deadline, we would no longer be able to operate our defence strategy with a nuclear submarine in the way that you are planning. What would we do? Sir Bill Jeffrey: It is not a hypothetical question. In relation to Astute, by some way the most significant factor, as I understand it, was the substantial loss of skills between the end of Vanguard construction and the commencement of the Astute programme. A great deal of our problems are down to that and to an unrealistic view of how much risk we could transfer to suppliers. The fact that we are now for example taking over responsibility for the design ourselves, adopting a more hands on approach - and this is beginning to improve the Astute position in recent times - adopting a more active partnership approach with the company gives us some grounds for optimism that we can do much better this time. Let us not forget that Vanguard itself was delivered on time and to cost. Q25 Nigel Griffiths: Let us go on to Vanguard. If I can expand on one of the answers you gave to the Chairman, Vanguard came in in 1994 with what should prove to be a 30 year life span. Is that right? Sir Bill Jeffrey: 25 years was the original, projected life span but we are now talking about a five year extension. Q26 Nigel Griffiths: If I extend my logic, that will give you the benefit of the doubt. What you are saying in terms of the Ohio class going out of service then is that, around about two thirds of the way through Vanguard's replacement lifetime, the Americans are going to bring in a new system. Sir Bill Jeffrey: That is, broadly speaking, the position. Q27 Nigel Griffiths: What happens if we make a design breakthrough and require a larger or smaller replacement for the Trident D5? Larger, I presume, it could not launch. Can it launch a smaller missile? Sir Bill Jeffrey: There are two broad answers to that. The first is the one I gave the Chairman earlier, which is that at the highest political level we have an undertaking about compatibility prospectively. The second is that in recent months - and I have been involved to a degree myself in these - there have been discussions with the Americans about work together on a common missile compartment which ought to derisk this issue in the slightly longer term. Rear Admiral Mathews: One of the enduring strengths of this programme
has been our relationship with the Americans on the missile system, whether
it is Polaris, Trident or into the future with this system. Both countries
recognise that. As you rightly point out, the significant risk of being
ahead of the Americans is one we have to manage. The Americans have brought
forward their Q28 Nigel Griffiths: What was the exchange rate when you costed the elements of this programme that the Americans are involved with or that we are buying from America? Sir Bill Jeffrey: I do not know offhand. Mr Lester: 1.82. Q29 Nigel Griffiths: How much has this fall now pushed up the costs? Can you update the Committee on that? Mr Lester: We do a degree of buying forward of foreign exchange anyway which mitigates the risk over the next three years or so. That is a rolling buying forward programme. If over the course of the programme it just stuck at where it was today, it would add £300 million-odd to the overall cost of the programme. Q30 Mr Curry: You will understand if we are tempted to say that the motto over the Ministry of Defence door should be "Everything that can go wrong does go wrong", looking at the procurement programmes that Mr Griffiths has mentioned. The motto on this programme seems to be "Nothing can go wrong because, if anything goes wrong at all, then the whole programme becomes much more difficult." Is that a fair assessment? Sir Bill Jeffrey: I do not think so. I do not think the first part is true either. We have some well advertised procurements which have gone badly wrong and this Committee has been involved in them in recent years. I will never be one to defend the indefensible. On the other hand, if you look at the programme as a whole, we are delivering at the moment 350 equipment projects, about 300 urgent operational requirements and, in that much wider population of unremarkable programmes, our performance is a great deal better. I would just gently contest that everything can go wrong. Q31 Mr Curry: This is a very particular programme, is it not? This is a programme first of all which is wholly dependent upon American cooperation. Okay, there has been an exchange of letters but we are dependent on the Americans for key pieces of kit. We are also dependent on the Americans for the progress of their own development programme and its synchronisation or compatibility with ours. There could be dislocation there, could there not? Sir Bill Jeffrey: We have an independent deterrent in the sense that it is independently operable by decision of our Prime Minister. Having said that, as you observe, we are very much dependent on the Americans for the development and support of it. That is a close and, in my experience, very deeply collaborative and worthwhile relationship from which we get cost benefit as well as military benefit... Q35 Mr Curry: There is one point here at which my eyes slightly begin to glaze. There is quite a big section on Astute but we are going to have to build a submarine to carry these missiles, are we not, a Vanguard replacement? Sir Bill Jeffrey: Yes. Q36 Mr Curry: Where is that submarine in terms of conception? In whose eye is it a spark? Sir Bill Jeffrey: Principally, the project we are examining is the successor submarine. Q37 Mr Curry: But we do not have one yet, do we? Sir Bill Jeffrey: We are in the design phase of it, the concept phase. Q38 Mr Curry: Whereas the Astute at least exists, however late it is, meanwhile waiting for the Astute all the Trafalgar class are being absolutely clapped out and knackered, both boats and crew. We do not yet have a replacement for Vanguard. There is nothing to look at yet. Sir Bill Jeffrey: There certainly is not. One of the strengths of our position - and I acknowledge that there are some weaknesses - is that the current intention is to build what remains of the Astute class, which has a different purpose, as you know, from the Vanguard, in the period between now and the commencement of building the Vanguard successor. Q39 Mr Curry: Is there any read over from the Astute? Sir Bill Jeffrey: One of the things we are trying to do in an effort to derisk this is to maximise the read over and to learn as much ---- Q40 Mr Curry: The new boat is a completely new boat, as it were. It is not a stretched Astute. Sir Bill Jeffrey: It is going to be a development of everything that has preceded it. One of the things we are doing is to manage the design phase in such a way as not to design in things that will make it harder and more protracted to realise. Q41 Mr Curry: If you were a betting man, would you say that we would seek to extend the already intended extension of the Vanguard class life? Sir Bill Jeffrey: I am not a betting man. I am an elderly Permanent Secretary. Q42 Mr Curry: You have held some fairly sticky jobs. Somebody who has worked in immigration and the prison service, I would have thought, must be a betting man to have got that far. We are going to try and extend it, are we not, because we always do? Sir Bill Jeffrey: I meant what I said at the beginning. It is not inconceivable that it could turn out to be extended, but we cannot count on that. Therefore, the guys who are doing this day by day as their day job are working to 2024. That is the clear instruction they are operating under. Q43 Mr Curry: The reason I ask the question is that at the moment in the Trafalgar class for example tours of duty are longer than was originally intended. They come back into port and, because the facilities and expertise are no longer there in the civilian workforce, crews are being kept there to help deal with maintenance. My son served on one for many years so this is first hand information. The boats are clapped out. The crews are clapped out. Because the contract at the heart of it, that you got back to shore and then you went home for quite a long leave, has broken down, marital relationship breakdown is higher than it used to be in the service. When you start extending boats which are getting elderly and tired, I fear that the collateral damage becomes quite considerable. Sir Bill Jeffrey: That is certainly one of the factors. These are extremely complicated vessels. All experience is that things start to go wrong the longer you operate them. Rear Admiral Mathews: I do not recognise the picture you paint. The Trafalgar class continues to operate in exactly the same way as we have operated it since it came into service. The way we maintain them has changed little. The contractor who now delivers that maintenance is Babcock Marine who bought out DML. We changed the company. They are older. We are operating the older set of submarines that we have, so I fully accept that point. Q44 Mr Curry: We are not here to discuss the Astute, although it features quite centrally in this and makes us somewhat uneasy. We are heavily dependent from the point of view of the kit on the United States. There is a reactor issue and then there is the issue about the timing of their submarine development. Because their submarines were designed for a longer life than ours, we are now at a point of slight dislocation in relationships. If I say, "How concerned are you?" you are bound to say that you are not concerned because you have a very close working relationship with the Americans. Things could go wrong. It might not be us that make things go wrong. There could be things that go wrong because of the interdependence. At some stage politics are going to intrude there as well, are they not? We are all facing very difficult economic circumstances and one of the things people tend to do is to let slip orders, push back orders and push back procurement, to defer things. How confident are you that this commands such priority on both sides of the Atlantic that it would not be subject to that? Sir Bill Jeffrey: I am confident in the assurances we have and in the quality of the collaboration we have with the Americans. I nonetheless accept, as you say, that we are talking about long time spans here during which situations could change. It is undoubtedly the case, to take an extreme example, that if the Americans ever decided to get out of the submarine deterrent business altogether that would impose substantial costs on us if we wanted to continue. It does not seem very likely to me and at the moment I think we have to operate on the basis of the very high level of cooperation that we have and the assurances, which I think are serious, long lasting assurances, that we have received. Q45 Mr Curry: I understand the decision has not yet been taken as to whether we need three or four submarines. Is that correct? Sir Bill Jeffrey: That is correct. Q46 Mr Curry: That must have huge implications in operational terms as to whether we have three boats or four boats. If we were to decide to have three boats rather than four boats, what is the collateral there in terms of the demands upon the boat and the crew? Sir Bill Jeffrey: The starting point is the policy which the White Paper sets out of doing what the Chairman said at the beginning of the session, which we have been doing since 1968, which is to provide what is known in the trade as continuous at sea deterrents. To do that at the moment, we judge we need four Vanguard class submarines because there is always one out of action for one reason or another for reasons that are explained in the papers. It is possible, depending on how reliable the design turns out to be, that in the next generation it would be possible to provide that sort of cover with three rather than four, but we do not know yet. Q47 Mr Curry: Can you tell at the design stage? The decision will have to be taken before you build the fourth boat, will it not? Will you have enough operational experience then to be able to tell? Sir Bill Jeffrey: The intention is to make the decision much earlier than that. Q48 Mr Curry: Exactly, so nothing will be operational before you take that decision. Sir Bill Jeffrey: Nothing will be built before that decision. Q49 Keith Hill: I would like to focus on risk area three in the NAO Report on governance arrangements and therefore to put some questions about management and communications within management. Sir Bill, on page 22, box six notes that the Programme Board has not yet been required to come to agreement over difficult decisions or trade-offs. What would you say it has achieved so far? Sir Bill Jeffrey: The Programme Board is chaired by the SRO and, if you will forgive me, I might ask him to say something about what the Programme Board has done so far. Mr Lester: The Programme Board provides direction to a programme when direction is needed and takes decisions when there are particular decisions to be taken. In the run up to Initial Gate next autumn, there will be a range of decisions to be taken. We are coming up to one on the specifications of the common missile compartment and then the next big issue is the design of propulsion plant which will go into the new submarines. It just so happens that up to now we have not come across one of these big decision points, which is why the Programme Board has not taken a decision. It is not a reflection on the Programme Board; it is just that we have to take the milestones before the decisions are taken. We then provide advice to the Defence Board. Q50 Keith Hill: The two decisions you are about to take, you say, are on the missile compartment and propulsion. How are things panning out in relation to those decisions? Mr Lester: On the missile compartment, they are panning out fine in the sense that we are in negotiation with the Americans. Our requirements are converging and we hope very early in the new year to reach an agreement with the Americans both on our financial contribution and on the exact specification of the missile compartment to provide us with the long term guarantee of compatibility that Sir Bill was talking about earlier. On the propulsion plant, that is from my point of view the most tricky issue we have to deal with in the run up to Initial Gate, which is having enough evidence to judge the trade-off between initial costs, through life costs and risk to programme schedule between the different propulsion options that we are looking at. Q51 Keith Hill: You chair the Programme Board. Who are the other members of the Board? Mr Lester: We have the assistant chief of defence policy, who is the policy leader in this area in the Ministry of Defence; the assistant chief of naval staff, who is responsible for delivering the in-service deterrent and also the manpower for the future deterrent. There is Admiral Lambert, who is capability manager for precision attack. He is one of my colleagues in the equipment organisation who is the lead on submarines. We have the director general scrutiny, who is in charge of scrutiny for all equipment programmes. We have Admiral Mathews himself of course and the chief of the strategic systems executive, who is a newly appointed two star admiral who has just literally come into the job. We have representatives from the Foreign Office and the Treasury and the Cabinet Office. In that sense, it is a stakeholder management forum but also a forum where all the people running the individual lines of development are represented. Q52 Keith Hill: No reflection on yourself - as the Permanent Secretary said, you are a senior official yourself - but these are all pretty high powered characters. The NAO tells us that you do not have line management responsibility for the other members and you have to work by influence and consensus. One wonders how viable is that approach in the long term against the very demanding timetable we have been talking about. Mr Lester: To be honest, I think the Report slightly overplays the influence and consensus point. In MoD jargon, it is basically a two star committee so most of us are at the same kind of level. What I do have authority over is resource allocation. That is one of the strengths of the job, sitting in my current post, because I allocate the money for the vast majority of the future deterrent programme, both for the submarines and for the weapons and for the work at Aldermaston. I am quite clear that I am appointed by Sir Bill. I am answerable to the Defence Board and I am responsible for the advice that goes up to the Defence Board. It does not need to be a consensus body. A lot of these decisions are taken at very high level, either by the Board and by ministers inside the MoD or at prime ministerial level, but I do not feel obliged to harangue all these different people into the room until we reach a common view about things. I will put advice up and that is my responsibility... Q58 Mr Burstow: I wanted to look at the section dealing with decision making in the concept phase. I particularly wanted to draw attention to paragraph 2.9, where it says that there is an obvious judgment to be made about when to fix the design parameters for the submarine and how much more options analysis work to undertake first. Could you say what assessment has been made of when the last practical and possible time for making a decision actually is? Sir Bill Jeffrey: The tension that that paragraph describes is undoubtedly there because you do not want to make the decision too early and fix things undesirably. Equally, you do not want to leave it too late. Rear Admiral Mathews: We have been quite clear throughout this process that it takes 17 years to design and build a nuclear powered deterrent submarine. Working backwards, that is two years sea trials, seven years in construction, seven years' design and two years in concept. We are quite clear in our mind that the concept phase needs to be two years if we are going to stick to our programme. You will recognise that I have just given you two, seven, seven, two, which is 18 years, not the 17 years that we have. We are already planning therefore for a slight overlap between design and construction. Q59 Mr Burstow: How much overlap? Rear Admiral Mathews: One year. Q60 Mr Burstow: How typical would that be for the projects that colleagues have mentioned so far as exemplars of non-best practice? How many of those have had that sort of overlap? Rear Admiral Mathews: Most of them have had a far bigger overlap than that. Q61 Mr Burstow: What was the planned overlap in the past? Rear Admiral Mathews: They are different projects and therefore I could not give you an exact answer on each of those. Q62 Mr Burstow: Could I give notice and ask for a note on that so that we can get some sense of how much planning there had been of overlap and how much it overran? Mr Lester: Yes. Rear Admiral Mathews: We are planning a concept phase of two years. The White Paper did an awful lot of clarifying the concept phase. It narrowed that options base before we started. We knew it was a submarine. We knew it was nuclear powered. We knew it had to fit existing infrastructure. The options base is considerably narrower than where we typically start the concept phase from. That is why we are quite confident about delivering an outline design, a set of options for the Investment Approvals Board to take at Initial Gate in the autumn of next year. Q63 Mr Burstow: One of the decisions that is potentially not required until 2014 is the decision about how many boats to buy, whether it is three or four submarines. That does not come until the Main Gate investment decision. Why is it that that decision can be left until that point? Sir Bill Jeffrey: Our intention is to take that decision when we feel we have enough information on which to take it. It goes back to whether the reliability of the new generation can be confidently predicted to be sufficient to provide continuous at sea deterrents with three rather than four. There is an element of circularity in this because there are choices to be made about how much reliability to design into these boats. We may conceivably take that decision a little earlier than Main Gate. It depends on the moment at which we feel we know enough to make the judgment. Dr Hollinshead: It is part of the concept phase that both my team and the Admiral's combined are doing a three versus four boat study in detail. We already have half of that done. We are quite well into the groove in terms of understanding the issues there... Q68 Mr Burstow: Can I pick up on something in risk area four? It says in paragraph 4.5, "The Department accepts that the White Paper cost estimates are not sufficiently robust to provide an accurate baseline against which progress can be measured and budgetary control exercised ...". In terms of the work that has been done to date, when will such baseline data be available to allow that budgetary control? Sir Bill Jeffrey: As I said earlier, we included in the White Paper the best ballpark estimate we could offer of the overall cost. This phase, which we are describing as the concept phase, is refining that and developing costs in greater detail. When we come to Initial Gate in the autumn of next year, we will have better costings and the intention is to make some sort of --- Q69 Mr Burstow: At the first gate, you would have an accurate baseline against which progress can be measured and budgetary control exercised and sufficiently detailed cost models which can be used to manage cash flow? Sir Bill Jeffrey: That is the intention. Dr Hollinshead: The cost models should have a design in them by which we can cost in some detail. We will also understand the infrastructure and manning implications because we will know for example for which designs how many people there are on them or how much infrastructure they require. At that stage we will have a much better feel for how the different designs look and cost. Q70 Mr Burstow: Can I draw your attention to box eight on page 26? It refers to the tax treatment of the programme and says that the tax treatment of the programme as a whole is yet to be determined. Has it, since this Report has been written, been determined and, if so, what is the result? Sir Bill Jeffrey: The situation has not changed but the situation is a little simpler than the Report may have led you to believe. We will follow the Astute model which, for all tax purposes, is zero rated for VAT. There are some surrounding issues about elements which have to be worked out in more detail. Q71 Mr Burstow: Our nuclear deterrent is not VAT rated at all? Mr Lester: It depends which elements you are talking about. Elements of it are and elements of it are not. Q72 Mr Davidson: In the paper you mentioned that the Initial Gate decision will be taken by September 2009. Parliament is not sitting then. Will we be given the opportunity to approve it before the summer, which means you have to take a decision earlier, or will it wait until October or November, in which case there will be a delay? Sir Bill Jeffrey: Initial Gate is an internal point at which we essentially decide that the concept phase has been completed such that ---- Q73 Mr Davidson: I understand what it is. Sir Bill Jeffrey: We would be reporting to Parliament as soon as Parliament returned on the key elements. Q74 Mr Davidson: Dr Hollinshead is nodding saying you would be reporting what you had done but obviously it would be for our approval. Sir Bill Jeffrey: I think these would normally be decisions taken by ministers. Q75 Mr Davidson: That is to be pursued somewhere else. Can I clarify whether or not any decisions have been taken about whether the new reactor will be two or three? Rear Admiral Mathews: No decision has been taken. This is part of exactly what we go through, the option phase at the moment, and we are looking at four options or three options effectively. Q76 Mr Davidson: Have you any idea on when a decision on which reactor will be taken? Rear Admiral Mathews: By Initial Gate... Q79 Mr Davidson: Can I ask a number of questions about our relationship with the United States? I am a bit anxious that, on a number of these areas, we do seem to be pretty beholden to the United States. If there are delays in the United States programme, is that irrevocably going to damage your other timetable? Sir Bill Jeffrey: First of all, I would not use the word "beholden" myself. I think it is a strong, mutually supportive relationship. One of the side effects of the fact that, because the Ohio class submarine has a longer projected life than the Vanguard has, is that in some respects we are moving earlier than they are. Therefore, it is genuinely mutually dependent. Q80 Mr Davidson: It is genuinely mutually dependent but it is more mutually dependent for us than it is for them in the sense that they can more easily allow it to slip to the right in time terms than we can. Are there any signs? Under budget pressures, who knows whether or not the Americans might feel able to relax the timetable a little in order to save money in the short term? What guarantees are there that they will not do that? Sir Bill Jeffrey: My colleagues will correct me if I am wrong, but I
do not think there is any significant respect in which what we are planning
here is dependent on US timetables. As was exposed by the earlier questioning,
if anything an issue arises from the fact that the Q81 Mr Davidson: Can I just clarify. We are in more of a hurry to get this new system than they are, are we not? Sir Bill Jeffrey: We need to replace the existing Vanguard class of submarines earlier than they need to replace their equivalent. Q82 Mr Davidson: So if they take their foot off the gas in order to save money, which is entirely understandable give the financial pressures they might be under, then that is going to impact much more upon us than on them. What guarantees do we have that they will not do that? Sir Bill Jeffrey: I may be misreading this, and my colleagues will tell me if I am, but I do not think what we are doing is dependent on the pace of their replacement programme, it is dependent on the quality of the co-operation, in particular over the important issue of the missile itself and the missile compartment, and that co-operation is of a very high quality. Rear Admiral Mathews: The common missile compartment is the nub of this
question because that is the piece of equipment we need from the Q83 Mr Davidson: I understand that there is no alternative, I understand that aspect of it, I just want to be clear about the extent to which our timetables gel. I want some clarification on the question of technology transfer. Are there any diffiuclties that are conceivable with the United States in terms of technology transfer to us for any subsequent upgrading at all? We had some of this in relation to Joint Strike Fighter when there were discussions, but is there any parallel here at all? Rear Admiral Mathews: No, this is completely different because the Polaris Sales Agreement is an international treaty, it is a government-to-government agreement which cuts through all the foreign military sales type issues, ITAR, issues we have had with the Joint Strike Fighter. This has stood the test of time for 50 years. We are well-rehearsed in technology transfer through the Polaris Sales Agreement. It happens constantly and we are currently in an obsolescence management programme for the strategic weapons system within the Trident system and it is not an issue. Q84 Mr Davidson: Can I turn to the major point about the cost of supporting the submarine industry. As part of the Defence Review we agreed that we were going to maintain all sorts of things for submarines. As I understand the report, the cost of maintaining a British submarine capacity is not being borne by the nuclear programme, in which case by whom is it being borne, or by what programme? Is this a way, as it were, of hiving some of the costs off the nuclear programme on to conventional submarine provision? Sir Bill Jeffrey: The submarine programme is either to be the deterrent or nuclear powered submarines, namely the Astute, so the cost of the indigenous industry can be attributed to one or the other of these. What we are very keen to do both in relation to the construction part of the submarine industry and the support part is to use such leverage as we have through this programme, and for the reasons that we discussed earlier there are some limits on that leverage, to encourage industry to drive costs out, to be open with us about the costs and to make the whole thing affordable. Q85 Mr Davidson: I just want to be clear about the ongoing costs of maintaining a submarine building and reactor capacity. Is part of the cost of maintaining that capacity being borne by this programme or is it only going to be borne by other programmes? Rear Admiral Mathews: The way to look at this is that we have a UK industry
which comes with an overhead and what we have done is by designing the
Astute programme we have optimised the throughput through the Barrow BAE
Systems' yard to get to an optimum build drumbeat, as we call it, basically
to sustain industry and to flex skills. Though our aim is clearly to deliver
a seven Astute programme, because that is the capability that we need
to meet our defence outputs, underneath that sits a programme and an approach
to programme management that has optimised the rate we build submarines
against the workforce we have and the facilities we have to make an efficient,
lean organisation delivering the output we require. The longer term commitments
we can make in terms of forward programme, the better planning we can
make in terms of managing business across build and support. This is a
long-term programme that makes long-term commitments that enables us to
make long-term planning decisions about how we manage Q86 Mr Mitchell: Can I pursue the point Ian Davidson has mentioned. The Defence Industrial Strategy in 2005 established the principle that the United Kingdom would retain all those capabilities unique to submarines. Why? Submarines are perhaps a useful weapon in a Cold War situation when you are opposing another submarine power with nuclear submarines, but when it comes to the kind of work of the Navy or the Defence Department, whether against pirates, Sierra Leone, touring the Gulf or whatever, nuclear submarines are no use at all. It is just a residue of Cold War thinking that we have got to have this. Sir Bill Jeffrey: The thinking behind that part of the Defence Industrial
Strategy was that the technologies involved in constructing nuclear submarines
for our use, and in particular the capability required to support them
once they have been got into service, were in that category of defence
capabilities that ought to be kept on. What I would add to that is not
at any price. If you look at the White Paper, paragraph 6.3 signals our
intention to build the new SSBNs in the Q87 Mr Mitchell: Are we a big enough, serious enough and powerful enough nation with a strong enough engineering and construction tradition to be able to afford to maintain a submarine capacity? What other countries have it besides the US and Russia? Sir Bill Jeffrey: The French do. Rear Admiral Mathews: Nuclear powered submarines or nuclear deterrents? Q88 Mr Mitchell: The French will want to build a euro nuclear sub, I have no doubt! Rear Admiral Mathews: France, US and Q89 Mr Mitchell: It is very specialised. 5.2 tells us: "The industry is made up of a number of monopoly suppliers, including BAE Systems and Rolls-Royce..." That means two things. One, they have got you over a barrel when it comes to negotiating with them because they are the only people you can buy from. How do you control their costs? How do you manage the contract? Sir Bill Jeffrey: That has been the challenge of the Astute programme. As I said earlier, we have learned from that programme. To my mind, the essential starting point is to acknowledge that we are dealing with single suppliers in this case, as we sometimes are in the defence field and as other nations are in their own particular contexts as well, and how best to get value for money within that sort of context. Q90 Mr Mitchell: Do these firms do anything else? Are they so specialised they only exist if you are building nuclear submarines? Sir Bill Jeffrey: The Barrow shipyard in recent years has very much specialised in the construction of nuclear submarines, yes. It has not only done that. Rear Admiral Mathews: It services ships as well. Q91 Mr Mitchell: It must be a drain on lots of other aspects of industry, whether it is making cars, washing machines or better fridges, that so many skills are tied up in this particularly useless sector. Sir Bill Jeffrey: Without rising to the word "useless", these are very specialist skills. Undoubtedly, one of the issues we have is to ensure that the nuclear submarine industry continues to --- Q92 Mr Mitchell: If you are a mother or a teacher advising a son, I notice posters around Yorkshire, "Go into coal mining, it's a job for life", but you would not say, "Go into nuclear submarine design, lad, it's a job for life", would you? It is a very fraught thing, it depends on contracts and in the ultimate it is a very narrow concentration of skills of no use anywhere else. Sir Bill Jeffrey: Just at the moment it is a job for quite a while is one answer to that question. Secondly, as the civil nuclear industry is built up, as appears likely, the challenge for us is to ensure that we, as the Report brings out, have a flow of suitably skilled people because people with these skills will be in very high demand. Q93 Mr Mitchell: Is the cross-subsidisation there similarly with the nuclear industry? Sir Bill Jeffrey: Certainly there is an extent to which the same skills are relevant to both and we are in competition for these skills. We are very conscious of it and have a project going on at the moment to think about how we can become more successful in recruiting people with this skill set. Q94 Mr Mitchell: I want to ask the Rear Admiral why the Navy wants these big beasts. You could have lots of frigates, you could be shooting and arresting pirates in the Indian Ocean. Rear Admiral Mathews: We are. Q95 Mr Mitchell: You could be deployed in the Gulf massively, you could have lots more frigates, destroyers, anything you wanted. Why do you want all the money put into these big beasts, 5-6% just to keep them going? Rear Admiral Mathews: There are two separate issues here. There is the strategic submarine, the ballistic deterrent submarines, which is government policy which the White Paper --- Mr Mitchell: That is an excuse that it is government policy. Why does the Navy want them? Q96 Mr Curry: It is your Government. Rear Admiral Mathews: Then there is the --- Q97 Chairman: The poor Admiral cannot start disagreeing with the Government, it would not do his career any good! Rear Admiral Mathews: There is a fundamental question about what Hunter Killer submarines do. They have a wider range of capabilities, including intelligence gathering, which is extremely useful in these days of piracy at the moment, for example, special forces. I could go on and bore you, but they are far more capable than you probably think. Sir Bill Jeffrey: The policy was set out in the White Paper which was the subject of a parliamentary vote. Q98 Mr Mitchell: Given the absorption of skills that could be usefully employed elsewhere that are needed to keep this industry going, why do we not just pack it in and buy from the Americans? Sir Bill Jeffrey: In practice I do not think that would be feasible. Q99 Mr Mitchell: Why? Sir Bill Jeffrey: That is a judgment that has been made because of the
supply base in the Q100 Mr Mitchell: We are dependent on them for the missiles. We have problems now about the size of the missile part of the submarine which are dependent on what they design for their purposes, not on what we need. Sir Bill Jeffrey: As we said earlier, there are some very constructive discussions going on about the common missile compartment and the means of making sure that we do not come adrift of their thinking. Rear Admiral Mathews: There are significant advantages to being at the
start of a programme with the Americans rather than buying into it at
a later stage. One is that we can influence decisions. Secondly, there
are much greater opportunities for Sir Bill Jeffrey: If I may say so, Mr Mitchell, although we need to be
driven by defence capability rather than purely industrial considerations,
there are many who would think that a thriving expert nuclear submarine
industry in the Q101 Mr Mitchell: The Americans are perfectly capable of ditching us as they did with Polaris, did they not, and yet we are depending on them for the size and design of the missile compartment of this ship. At what stage in the design can you change that and enlarge it, if necessary? Sir Bill Jeffrey: The purpose of the discussions that are going on now is to agree on the approach to a common missile compartment that we would adopt in our successor submarines and that in due course they would adopt in theirs with an eye to getting the dimensions right in both cases. Q102 Mr Mitchell: CND have submitted some ideas to us and they say that the MoD is not serious when it suggests that it could keep the Trident D5 missiles in service throughout the life of the new submarine, I am told 2055. Are you saying that? Sir Bill Jeffrey: I do not think we are saying that. One of the things that underlie this whole approach is our realisation that even assuming, as is a fair assumption, that the D5 missile was extended, the extension will take us only partway into the projected lifetime of our successor deterrent and that is the reason we are thinking now with the Americans about what happens after that. Q103 Chairman: Presumably the answer to Mr Mitchell when he said why do we not buy off the Americans is if we bought everything off the Americans it would not be independent any more, is that the answer? Sir Bill Jeffrey: As the earlier question exposed, the independence of our deterrent lies in our ability to operate it independently and there is undoubtedly an extent to which if you view the whole thing, the submarine and the launch system, missile warhead, there are significant respects in which we are dependent materially on the American contribution, but that is not to say it is not an independent nuclear deterrent. Q104 Chairman: But not on the targeting of the warhead? Rear Admiral Mathews: No, or the communications. Chairman: Or the communications. Thank you. Q105 Mr Williams: In my 18 years on this Committee the worst case I ever came across was the construction of the Trident base and the installation of the lift. Can I ask the NAO, I do not know whether anyone goes back as far as I do there on these reports, when you were preparing this Report did any of you have a feeling, "This is somewhere I have been before"? Mr Banfield: No, I did not. I think some of the work that we have done in the past, particularly looking, as the Rear Admiral referred to earlier, at the D154 in Devonport, you could see then there were similar challenges around the importance of timescales. We never felt this was just a repeat of what happened before. Q106 Mr Williams: You do not see potential similarities? Remember, the cardinal sin as far as this Committee is concerned, because it is so often easily avoidable, is changing specifications partway through a contract when you are firmly over this bow that keeps arising in our comments because you have no power to negotiate competitive tenders. That is a fact, is it not? That was a feature of the Trident base in Scotland and the lift. You do not see similar potential here? Mr Banfield: There are similar challenges to other aspects of defence procurement on a lot of these things, it is the scale of some of the challenges. Q107 Mr Williams: I am not talking about that sort of similarity, I am talking about similarities in the potential for things going disastrously wrong. In the case of the building of the base there were not just changes of specification in their tens or hundreds, there were thousands of changes of specification. I said on the day there were changes of changes of changes. It was Christmas Day every day for the contractors. This looks to be an absolute blueprint for going down the same route. How can we be following on from the Americans when we have placed the contract and started construction before we finish the design? How can we be sure that we are not going to be in exactly the same situation we were in the with the base? Sir Bill Jeffrey: Can I make two comments on that. The first is before this hearing I read the NAO's report and your Committee's report in 2002 on the Devonport facility and we have learned lessons from that. Our whole approach now is more of partnering, given the single source of supply point that was made earlier, and more of a realistic understanding of how much you can actually transfer risk to the supplier, a more hands-on approach and better management of key stakeholders like the regulators. If all of these came out of the Devonport case we are very much on them now. Q108 Mr Williams: If you start construction before you complete the design surely you cannot sit there and say, "We can guarantee we are not going to be having changes on specification along the route", or perhaps there is some clever way you have found of doing it, in which case I will be very relieved. Rear Admiral Mathews: The important thing to recognise is what we mean by completed design. Having the submarine 100% designed will lead to a much longer build programme and may incentivise people to make change because of things like obsolescence management. If you are not careful you can take so long designing it things are out of date before you build. It is important to make a balanced decision here about cost to the programme, risk and managing the design. It is clear that you need to make the decisions about the big components, the big systems and make sure you have got the design integrated when you start construction. Some of the really detailed design about where you put some of the small bore pipe work you do not necessarily have to get done. If the aspiration is for us to sit here and say we want to have a 100% design maturity before we start construction, that is the Holy Grail, it may not be possible for us to achieve that, and nor should we try because it will drive you to additional costs in build. It is about making a balanced design and being clear about where the design has gone, you have integrated it, you understand it and you are clear about those areas that you have not finished. Q109 Mr Williams: How important is the size of the missile chamber? Rear Admiral Mathews: It is the payload for the submarine, it sets it out, which is why in our work for the concept phase we are very clear about setting out some clear design decisions about submarine diameter, the size of the missile tubes in terms of their diameter and length, so that we are absolutely clear when we proceed to the next phase of the detailed design we have got those things pinned at the start. Q110 Mr Williams: We are told in the Report that the size of the missile compartment depends on the US designing the missile and they have not designed it yet. Rear Admiral Mathews: The whole point is that the US and Q111 Mr Williams: That will all be done before --- Rear Admiral Mathews: Those decisions and the work we are taking forward now are to reach decisions by the time we get to Initial Gate. Q112 Mr Williams: What sort of timescale would decisions of this sort be needed in? Rear Admiral Mathews: By September next year. Q113 Mr Williams: You are going to be able to make all of these certain commitments? Rear Admiral Mathews: We are intending to make decisions about the missile tube and the diameter of the missile compartment before September next year. Q114 Mr Williams: If it turned out to be significantly larger, what would be the implications of that for the design of the submarine? Rear Admiral Mathews: We are quite clear that it cannot be significantly
larger because this submarine has to fit Q115 Mr Williams: Bigger lifts. Rear Admiral Mathews: Just like the issue about setting the size of the missile before you design it, infrastructure limits you on the size of the submarine you can build. Q116 Mr Williams: So you can sit there and guarantee this Committee, and you are going to be 76 by that time so I do not think you need to worry about your career prospects at that stage, --- Sir Bill Jeffrey: I am tempted, Mr Williams, to return that with interest actually! Q117 Mr Williams: You can sit there and say you are genuinely convinced that we are not going to see any repetition of the disastrous cycle of re-contracting that we saw with the construction? Sir Bill Jeffrey: If I might respond to that. I do not think we would be wise if we sat here and guaranteed anything frankly. Q118 Mr Williams: Well, that is what worries me. Sir Bill Jeffrey: These are difficult. Q119 Mr Williams: A moment ago you were telling me I had got it all wrong because I was casting doubt and now you are turning round and saying, "We are not here to be guaranteeing anything". I thought that was what you were here to do, otherwise the Government has got a problem, has it not? Sir Bill Jeffrey: What I am saying is, as the Report brings out very clearly, we are responsible for a large, complex, challenging programme extending over many years which has a lot of inherent risks but we will have to manage these risks. We think we have learned from recent experiences and can manage them more successfully now than we have done in the past, but that does not constitute a guarantee. This is a department of state doing its best. Q120 Mr Williams: It sounds a rather equivocal guarantee, if I may say so, from where I am sitting. Sir Bill Jeffrey: Grounded in optimism because I think we are genuinely better placed to deliver this programme on time than might have been the case in the past. As I have said once or twice during this hearing, bear in mind that our predecessors did succeed in delivering the Vanguard on time and to cost. Q121 Mr Williams: You are saying, "I think we are", you are not saying, "I am sure we are". Sir Bill Jeffrey: I am confident, but it would be a very unwise --- Q122 Mr Williams: You are confident, but. What is the but? Sir Bill Jeffrey: But this is difficult and it has got a lot of risks in it. We need to do our best to manage these risks successfully. Mr Williams: I regret I will not be here when the crucial time comes to look at whether you were right or wrong. Thank you, Chairman. Q123 Chairman: I think, gentlemen, that concludes our inquiry. It has been very interesting and a worthwhile exercise. Clearly this Committee is going to have to come back and look at this after September. I do not know about my colleagues, but I am certainly extremely concerned about this point that we are going to have to design these submarines before the Americans make their final decision on the design of the missile compartment, which appears to be the absolutely crucial point. The Admiral has done his level best to try and reassure us. He is now shaking his head, and, in all fairness, I think I should give him a chance to reply to that point. It is something that is worrying us because there is absolutely no room for manoeuvre here, these things have to be delivered on time. What worries me is we are such a minnow compared to the Americans, they are taking such vast decisions compared to us that I would have thought our bargaining position with them if there is any problem with the design of the missile compartment is quite weak. It is only fair the Admiral has a last say. Rear Admiral Mathews: Just to give you a feel for the programme, Chairman.
Our aim is that we are going to build these missile compartments with
the Americans. We have not decided where we are going to build them, it
might be the Q124 Chairman: That is a fairly crucial point for a start. Rear Admiral Mathews: This an ongoing piece of work, as you would expect.
Just to give you a feel for how these missile compartments come out: numbers
1 and 2 will be for the Q125 Chairman: Will be in construction? Rear Admiral Mathews: Will be in construction. Q126 Chairman: We do not even know, but you think they will be built in America now. We have not heard this before. Rear Admiral Mathews: What I said is we have not made a decision about
where we are going to build them. When I say that, there are a number
of options for us about how we do this. If we are building between 3 and
4 for Sir Bill Jeffrey: The reason the Rear Admiral reacts as he does is the whole point of the discussions we are having with the Americans now about the common missile compartment is in essence to advance that crucial design so that it is taken to influence our build as well as theirs, allowing for the fact that they will be replacing later than we are. Q127 Mr Davidson: In relation to this question of the missile tubing and, indeed, other parts possibly being built here, possibly there, the partnership that is going to build the aircraft carrier, and the partnership that is building the Type 45, involves bits being constructed in different locations. Is there any suggestion that any of the American bits will be built in Britain and shipped there, so in terms of driving down cost, as has been done on the aircraft carrier, the longer run and so on and so forth, will any British facilities have contracts for all the UK boats and the American boats as well? Rear Admiral Mathews: That was absolutely the point I was trying to make.
There is that potential in this deal, it is very different. There are
certain Q128 Mr Davidson: The argument then would be that the American deterrent was not truly independent in as much as it was dependent upon bits being built in Britain. Rear Admiral Mathews: If you took, for example, major forgings, which Sheffield Forgemasters make in the UK and potentially make for the US, then I think buying a large forging does not mean that your system becomes dependent on another country, that is done for economic and technical reasons. Chairman: That concludes our hearing. May I say that although I was a
bit rude about the Senior Responsible Owner, I always try to congratulate
a witness where I can when he performs well in this Committee, and Mr
Lester has been very clear in his submissions to us and I am very grateful
for his fluent testimony, and indeed to the Admiral. Thank you very much
indeed. Back to Proliferation in Parliament, Winter 2008 © 2009 The Acronym Institute. |