Select Committee on Defence Minutes of Evidence



Examination of witnesses (Questions 1 - 19)

WEDNESDAY 28 FEBRUARY 2001

BARONESS SYMONS OF VERNHAM DEAN, SIR JOHN CHISHOLM, MR BILL CLIFFORD and MR TERENCE JAGGER

Chairman

  1. Baroness Symons, Sir John Chisholm, Mr Clifford and Mr Jagger, thank you very much for coming. Baroness Symons, I understand that you would like to make an opening statement.
  (Baroness Symons of Vernham Dean) If I may, yes.

  2. First, I shall make an opening statement. Two of our colleagues are taking part in the debate on Sierra Leone so they will join us later. Throughout the current Parliament, the Defence Committee has been closely monitoring the progress of the proposed public-private partnership for DERA. We have produced three reports. Our Defence Research report highlighted our concerns about the MoD's plans, concerns shared by many important stakeholders: industry, the trade unions and the US authorities. The MoD abandoned its plans for a "Reliance" model for the PPP, to which we had very strongly objected. It launched a consultation on an alternative "Core Competence" approach in April 2000, which involved a much bigger proportion of DERA staying within the MoD . "Retained-DERA", as it was then called, would keep about a quarter of DERA within the department, leaving most of it in a plc called "New DERA". Our latest report on The Future of DERA, published last June, welcome these improvements but warned that the fundamental weaknesses of the proposed PPP had not all been removed, and that there were still significant areas of uncertainty which the MoD had yet to resolve. We promised that we would return to this subject. The MoD announced its intention of proceeding with the PPP on 24 July last year, and it has since been dividing DERA into its two new entities: New DERA and Retained-DERA (now re-titled the "Defence Science and Technology Laboratory"). The immediate occasion for our session this morning was the laying of a draft Order to establish the DSTL as a trading fund from 1 July, paving the way for the incorporation of the rest of DERA as a plc. So the focus of our session this morning is on the current state of play on the privatisation, in particular, the move to Vesting Day for the new organisations and what that involves; the MoD's progress in resolving the outstanding issues that we flagged up in our earlier reports; the way New DERA and DSTL have been divided up; and how the Defence Diversification Agency fits into the new scheme of things. I anticipate that our session will be largely public, but should we ask questions on the United States and the degree of support or acquiescence that they have given, perhaps it may be more prudent to go into private session, but I would prefer not to do that. It will depend on how much you are prepared to say. On a previous occasion I was accused by one distinguished journalist of being "incandescent with rage". I promise you that it will require extreme provocation for me to degenerate into incandescence, but it cannot be ruled out totally. I thank you for coming and I hope you have brought your sandwiches with you!
  (Baroness Symons of Vernham Dean) Thank you. I shall try to do my best not to provoke you. I thank you and the Committee for providing me and my colleagues with the opportunity to discuss the amended DERA trading fund order laid before Parliament on 17 January. As you can see, I have with me a team of officials who I hope will be able to talk in some detail about some of the issues that you have raised. You know Sir John Chisholm, the Chief Executive of DERA, Mr Bill Clifford, who is Managing Director of the Security Division which consists of those activities that will be retained within the MoD and I believe that you have also met Mr Terence Jagger before, who leads the MoD's DERA Partnering Team. I would like to say a word about my two colleagues on my right, Sir John and Bill Clifford. They and the staff of DERA have carried out an immense amount of hard work over the past few months in undertaking the work that we believe is necessary to ensure that we stay on track over a successful public-private partnership. As you know, the announcement that we made in Parliament last July followed an extensive consultation exercise. We believe that substantially ended some of the uncertainty and the degree of frustration apparent in DERA staff. Sir John has had a difficult task in ensuring that he kept his organisation on the tracks, and he has delivered the programmes that MoD customers have wanted to see delivered during that period. It is always difficult in a period of change to sustain that but it has been carried out successfully. It has given us the confidence that the new organisations will be capable of being as professional and as successful in the changing environment in which we hope that they will operate. Mr Chairman, you have read out some of the background in relation to the decision over Core Competence, which was taken having had the consultation that we had over the earlier proposals. We now turn to the proposed amendments to the trading fund. The purpose of the changes are twofold. Firstly, it is to remove from existing DERA trading fund a number of activities that will form the basis for New DERA, which will be vested as a plc on 1 July 2001. Initially the plc will be wholly government-owned, but work will continue to prepare the company for a transaction. The precise nature and timing of the transaction is dependent on value-for-money considerations and, to a certain extent, upon the market prevailing at the time. Secondly, the order allows for the creation of the Defence Science and Technology Laboratory, which we now refer to as DSTL, in time-honoured MoD fashion. That will continue as an MoD trading fund and will be responsible for carrying out functions that our consultation showed could not be easily transferred to the private sector. Perhaps I may remind you of those. That is, first, research into certain very sensitive areas; secondly, the provision of a high level of overview of defence science and technology—that provides the overall core competence—thirdly, acting as an in-house source for impartial advice, free of all commercial considerations; and fourthly, the management of international research and collaboration. You yourself referred to the interest that our international partners have had in that. The order represents a further step in a successful transition towards the PPP. A substantial volume of the work is already complete. Although until the order is approved the DSTL and New DERA are still part of the single trading fund, they are progressively being managed and operated as separate entities already. The allocation of staff between DSTL and New DERA was agreed in November last year and the internal transfers took place on 2 January this year. So by April we envisage that the physical separation of the organisations will be completed to a level that will satisfy the MoD's normal accreditation authorities. An initial split in the current year's work programme was completed in December and from 1 April 2001 MoD customers will place work on the two organisations as though they were separate entities at that date. Our experience so far indicates that separation has progressed well and that the two organisations are already operating with a high degree of independence, hence both my colleagues on my right being here today. As we announced in July, we shall conduct a rigorous process of shadow operation and testing aimed at demonstrating the robustness of the organisations and the supporting infrastructures. I understand that that began about two months ago, but it will continue until the end of June. We are determined to test as fully as possible. I believe that we have listened carefully to what you and other interested organisations have said to us about this. We have taken an extensive period of consultation and I believe that, having made the announcement that we have made, we are making good progress and are able to set up a route-map of where we see matters progressing over the next year or so.

  3. If you had listened to us, Baroness Symons, you would have heard us say that you are separating two parts of a viable organisation. I am delighted that everyone is really happy with what is happening. I understand that there was a MORI survey. Did you bring it with you?
  (Baroness Symons of Vernham Dean) No, Mr Chairman.

  4. We could see how happy everyone is.
  (Baroness Symons of Vernham Dean) I am aware that there have been a number of different surveys. I believe you will also be aware that during the course of our consultation we received 125 individual letters—a substantial number of individual letters—but taken as representational of the 12,000 or so staff that represents about 1%. I agree that 1% is a substantial number of people when they write as individuals. The trades unions have left us in little doubt that they had apprehensions and misgivings. I am sure that you know, Mr Chairman, as I do that the trades unions are prepared to get behind the new proposals and that they acknowledge that we have listened. You said that if only we had listened to you. We did listen to you, but in the end we did not agree with everything that you said. That does not mean to say that we did not listen to you. We have listened very carefully and the trades unions in a letter to me dated 23 February this year have said that they now want to see us progressing these proposals and that they believe that they will behind the proposals, as will the overwhelming majority of staff in DERA.

  5. You should have no objection to showing us the MORI survey.
  (Baroness Symons of Vernham Dean) I do not know the status of the MORI survey at the moment. I have no objections myself, but I look to Sir John.

  6. Everybody is blissfully happy so there is no problem.
  (Baroness Symons of Vernham Dean) Are there problems with this, Sir John? Is it MORI's property or is there a legal doubt about this?
  (Sir John Chisholm) I am not sure to what you are referring when you talk of a MORI survey. We had a Gallup survey carried out.

  7. The Gallup survey then.
  (Sir John Chisholm) We published the results of a Gallup survey of our staff in our newspaper.

  8. When was that?
  (Sir John Chisholm) That was in the autumn.

  9. We do not receive your staff newspaper, but if there is raw data we would love to receive that, to see whether it confirms that everybody is idyllically happy.
  (Baroness Symons of Vernham Dean) Mr Chairman, that is a little unfair. I made a particular point of not saying that they were idyllically happy. I have been very clear that there are still misgivings and worries, but the trades unions have said that, recognising the way they are going, they wish to progress matters as quickly as possible.

  10. I understand their motives. I have spoken with them too. They are not idyllically happy; they are acquiescent. They recognise that further disruption would be damaging to the operation. That does not mean support for what is happening, but they are looking to the future and trying to salvage something from what they regard, as we do, as being anti-structural. Acquiescence does not indicate enthusiasm. In your summary of the consultations, you hardly give a flavour of what the views were. People are apparently reasonably satisfied, or whatever the phraseology was. You would not even send us copies of the report and said that to get their views would entail a disproportionate cost. I could not see why a first-class letter or one sent by internal mail to the people who gave evidence to you saying, "Would you be prepared for this document to be released to the House of Commons Defence Committee?" would be more than 0.0001% of the money spent on splitting the two organisations. Why could we not have access to the organisations that you have apparently managed to get on board over this consultation?
  (Baroness Symons of Vernham Dean) As I understand it, when the consultation was undertaken, we did not make it clear to people that we wanted to put their views into the public domain. People gave us their views on the basis that they were giving them to us and that they were not for publication. I think we would run into considerable difficulties were we to put into the public domain the views that people felt that they had given to us on a confidential basis.

  11. If you said, "The Defence Committee has asked to see the views, so are you prepared for us to send them to the Committee", that would require one letter to the people and one letter back. If they had said "No", we would have respected that. Our safe is not necessarily open to the general public. We have lots of information stored in our private secure accommodation that is available for the Committee to see on a very sensitive basis. I cannot see why those conditions could not apply.
  (Baroness Symons of Vernham Dean) On the second point, I agree with you. If the Committee were able to undertake to keep the results confidential, we may have room for some progress. If I may, I would like to take that away with me to see whether there is more information that we can give you on that basis. It would be quite difficult for us now to write to people, sending them copies of what they said, and asking what they want in the public domain or do not want in the public domain. That may be quite a problem. If there is a way forward on this I shall examine the matter. I did so at the time that the request came to me and I felt that we were in some difficulty over this matter, given that individuals had given their views on a private basis. If you want me to re-examine this issue, without prejudice to the outcome, I shall certainly do so.

  12. Please do.
  (Baroness Symons of Vernham Dean) Like you, I believe that we should have as much as possible in the open and not putting things in the open actually breeds suspicion and doubt. I do not believe that we have anything to hide. It is purely a matter of safeguarding the position of individuals who thought that they had given information on one basis instead of on another basis.

  13. As such a major change in policy is unfolding, and as we, as a committee, are charged with monitoring what is happening in the MoD and in the agencies, we have a right to approach you and to seek information.
  (Baroness Symons of Vernham Dean) Absolutely.

  14. We would be very relieved if the majority of the stakeholders are, if not just acquiescent, reasonably enthusiastic.
  (Baroness Symons of Vernham Dean) It may be easier if we were to concentrate on organisations rather than individuals in trying to obtain release of what they actually said. I do not know how that strikes you, but that is a way forward.

  15. That is fine.
  (Baroness Symons of Vernham Dean) If I were to go to all 125 individuals from DERA that may be rather more difficult, but if I were to go to the organisation that submitted evidence, that may be a way of giving you more information. I rather doubt that anybody from those organisations would have a problem with that. Presumably they have already consulted extensively within their organisations before sending it to us.

  16. That is fine.
  (Baroness Symons of Vernham Dean) Would that be helpful?

  17. That would be wonderful—and the Gallup survey. We would then have our finger on the pulse in a better way.
  (Baroness Symons of Vernham Dean) The Gallup survey results have been published and we shall certainly send you that information.

Mr Hancock

  18. You made a fairly intensive opening statement about the background and how you have arrived at where you are today. I am interested to know whether there were any significant issues raised in the consultation which actually put serious doubts in your mind about whether or not you would get support in reality and I am interested to know whether writing to stakeholders and asking them for their comments was a cosmetic exercise. What significant reservations did they have? You did not mention any of those.
  (Baroness Symons of Vernham Dean) We have carried out two lots of consultation. To which one are you referring?

  19. The second one.
  (Baroness Symons of Vernham Dean) The second lot of consultation was on Core Competence. We tried to lay these out in the document that we sent to you on the outcome of consultation. We put together the sorts of issues that have been raised. For example, there was a view taken that there was a lack of detail in the consultation document itself and, therefore, people were concerned about whether there was a hidden agenda behind what was happening. They felt that it was made difficult for respondents to feel confident about the future trading relationships. If you have not had a copy of that I can send you one, but as you go through that document we have tried to be very straightforward about the sorts of issues that people raise. One point, as I am sure you know, and it is one that the Committee itself has expressed, is that the PPP is being pursued solely as a means of dealing with some of the perceived shortfalls in the defence budget. That has been a feeling that people have pursued generally. I am sure you do not want me to go through all the individual points, but if we had felt that there was, what you may describe as a "show-stopper", in the same way that we did for the original proposals, I personally would not have had an insuperable difficulty in thinking again about this. I genuinely would not, in the same way that I did not have an insuperable difficulty in thinking about the original proposals that we have now altered considerably. Yes, there were doubts and difficulties. I believe that they have been laid out in the document that you have already, together with the response that we have given to those doubts and difficulties.


 
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