Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

WEDNESDAY 8 MARCH 2000

MR KEVIN TEBBIT, SIR ROBERT WALMSLEY, VICE ADMIRAL SIR JEREMY BLACKHAM AND MR JOHN OUGHTON

Mr Campbell

  40. "Throughout this period, the aircraft was kept in operational service"—we are talking around the period 1993-94—"A Chinook MK2 pilot later recalled `it was quite a concern to us ...[but] we were told to get on with it.'"
  (Mr Tebbit) He may well have said that.

  41. That does not concern you?
  (Mr Tebbit) It does not concern me now, no, because we know that the system, as I say, was safe.

  42. Okay, I may come back to that. I want to move on.
  (Mr Tebbit) I cannot comment on how pilots were discussing these sorts of things afterwards. I understand why people should have said those things.

  43. I may want to come back to that. Which do you think is most important for the MoD when they are deciding on procurement, cost or value?
  (Mr Tebbit) It is a combination of time, cost and quality, all of those add up to value and it is a matter of balancing those three considerations.

  44. Let us have a look at some examples, p14, figure 5, the Single Role Minehunters, HMS Bridport and HMS Inverness. The Report says one of the shortfalls was the recovery of the Remote Control Mine Disposal Submarines proved problematic in certain sea states. I understand these are commonly referred to as "yellow submarines". As a result of this shortfall, did we lose or mislay any yellow submarines?
  (Mr Tebbit) I hope not. I think this is a general problem in Navies and care does need to be exercised and I saw them at Vospers last week. Perhaps Sir Robert, who is our expert on this, could comment on that.
  (Sir Robert Walmsley) I have personally been to see this in a ship because it was a concern of ours. It was quite difficult to see where the hook from the crane was getting into what you have called a yellow submarine but what is usually called a PAP, a Poisson Auto Propulsé, French equipment and bright yellow so you can see it easily, but they are only just breaking the surface and with the ship rolling you are trying to do two things. You are trying to stop the PAP bouncing into the ship and damaging either the ship or itself and you are particularly concerned with the safety of the person who is leaning over the side of HMS Inverness or HMS Bridport when it is rolling seriously to try to engage the hook from the crane into the eye of the PAP.

  45. So we have now rectified the problem. What was the cost of rectifying the problem?
  (Sir Robert Walmsley) I am afraid I will have to let you have a note on that[14]. We have rectified the problem. In the seven new build ships and we have to back fit it in the existing five SRMH. I think four are now left in service.

  (Vice Admiral Sir Jeremy Blackham) That is correct.

  46. Can we move on to page 46 and the rather nice picture of HMS Ocean. There was a landing platform for helicopters which I believe cost the taxpayer £200 million. It was built, as I understand it, at VSEL and partly at Kvaerner-Govan. When was the order placed for HMS Ocean?
  (Vice Admiral Sir Jeremy Blackham) 1992[15].

  47. And how late was it?
  (Vice Admiral Sir Jeremy Blackham) About a year late.

  48. I understand that the Department can invoke damage clauses in the contract if this is the case. Did you invoke those clauses in the case of HMS Ocean?
  (Vice Admiral Sir Jeremy Blackham) Yes.

  49. As a general guide the figure for that is two per cent which on my mathematics would be some £4 million. Do you think that is a sufficient safeguard for the taxpayer?
  (Sir Robert Walmsley) Probably not. Two per cent would not be my general figure. It is related, I agree, to the production cost of the item and separately negotiated for each contract. What we are trying to do is to assess the cost to the front-line armed Services and particularly to the Deference Logistics Organisation of continuing to maintain the existing equipment in service. We try to work backwards from that to assess a nominal percentage in relation to the delay on the new equipment coming into service and we then express the clause as so much per cent per month for the equipment being late. What we have learned from this Committee, as a result of the Major Projects Report 1997, is that we should collect those damages as they become due rather than waiting to the end when we collect the lot. There is nearly always a limit on that which is where numbers like two per cent come in. They might accrue a quarter of a per cent a month or half a per cent a month, but we nearly always want to cap them. There are very few contracts with an uncapped liability on them which you do not know until you have pay for it up front in the price. That is our approach.

  50. Can we turn to Box 3 on page 21 and the Royal Fleet Auxiliary Fort Victoria which I understand was built at Harland and Wolff and the contract placed in 1986. When was Fort Victoria due for delivery?
  (Sir Robert Walmsley) I think it was 18 months late.
  (Vice Admiral Sir Jeremy Blackham) In 1990.

  51. When was it accepted into service?
  (Mr Tebbit) 1993.

  52. It was fitted out at Cammell Laird, was it not?
  (Sir Robert Walmsley) Yes it was.

  53. Is that usual practice?
  (Sir Robert Walmsley) Absolutely not. We were very unhappy about the final period of time of this ship at Harland and Wolff. The Report makes clear that Harland and Wolff did not really understand or appreciate the Ministry of Defence acceptance process. The Chairman earlier spoke about a culture of low standards. We raised 13,000 defects on the Fort Victoria. In a way I worry that that actually shows that we are ready to pursue this process ad infinitum and past the point where it is sensible. Lots of them were paint splashes, scratches, this sort of thing. What we need to do is to focus much more on the real defects and make sure they are fixed and deliver the right performance at the right reliability.

  54. There was something else pushing you towards acceptance and it was writing off half of the 13,000 defects because there were very strong rumours that Cammell Laird was going to be closed and if Cammell Laird was going to be closed and your ship was in its yard then presumably you could not get it.
  (Sir Robert Walmsley) That was not the purpose of removing the ship from Harland and Wolff, to finish off the work at Cammell Laird. We wanted to do it as quickly as possible. We thought Cammell Laird offered the best prospect of that.

  55. But you are reassuring the Committee that half of the 13,000 defects were written off and there was not a rush to get it out of Cammell Laird because of the rumours about what was happening to Cammell Laird?
  (Sir Robert Walmsley) I cannot answer that question explicitly. What I can say is that we would not write off defects in order to rush a ship out. If we wanted to rush it out we would say we can hold those defects over and we move the ship out.

  56. Yes, but these are exceptional circumstances, are they not?
  (Sir Robert Walmsley) Our contract was with Harland and Wolff. There would be no question of us writing off defects. We keep a log of the defects. The question is were they all sensible. My contention is that with 13,000 we are beginning not to see the wood for the trees.

  57. You mentioned that the original contractors, Harland and Wolff, said that they were not aware of the Department's acceptance criteria and you are smiling so presumably the MoD did not accept that as an explanation.
  (Sir Robert Walmsley) I am smiling because I think it is astonishing that we should have taken the ship contract so far through its process before we discovered that the ship builder, who had recently completed the immense task of refurbishing the Royal Fleet Auxiliary Argus was still able to claim absolute ignorance of our acceptance procedures. The reason I am smiling is I find it hard to credit, but the facts are there.

  58. What is also quite worrying is that I think I am right in saying that the inspection of the weaponry on the RFA. Harland and Wolff in a sense complained because they said that the inspection had been carried out to the latest designs and yet the contract said that the weaponry had not to be to the latest design. If I as a taxpayer am helping to pay £240 million for a ship, why is it not getting equipment to the latest design?
  (Sir Robert Walmsley) I think this is one where I would like to say I think Harland and Wolff had a degree of fairness on their side. It is just a fact that weapons, as was reported to this Committee in the recent report, are always being modified. Any big weapons system will have a modification at least once every six months. Because the ship took so long to build—and, of course, you have to contract against a firm specification and during the period of construction modifications are coming out all the time—it seems to me very unfair on the ship builder to expect him to give you a fixed price for including modifications and we did not keep a careful enough record of what the specification was at the date of order in order to measure the delta in cost that would have been fairly payable to the ship builder. It was a dispute. My view is that the fault was on both sides.

  59. I understand that £5 million was retained because of the large number of defects. I am going to ask you the inevitable question, why did the MoD pay the £5 million and then have to recover it? They did intend to pay it, did you?
  (Sir Robert Walmsley) We did not intend to pay it. I think I can remember the afternoon we discovered the error. We moved very quickly to try to get it back. It was an aberration on our part, it was not an intentional payment and the Report records it fairly.


14   Note: See Evidence, printed with 44th Report from the Committee of Public Accounts (HC 319 (99-2000)). Back

15   Note by Witness: The year was, in fact, 1993, not 1992. Back


 
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