Select Committee on Defence Minutes of Evidence



Examination of witnesses (Questions 20 - 39)

WEDNESDAY 28 FEBRUARY 2001

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

Mr Viggers

  20. On the timing of these proposals, the letter written to us by the Secretary of State on 24 July clearly envisaged that there would be a vesting day on or about the 1 April. It is not specific about that, but it talks about a period of some three months after the shadow operation and that would imply a vesting date of 1 April, but in fact the vesting date is now the 1 July. What is the reason for that delay?
  (Baroness Symons of Vernham Dean) You are quite right on both the points that you have made. We were aiming for the 1 April, but you are also right in saying that we never stated that it was a hard and fast date. It was a date that we had as a working supposition. As I indicated in my opening statement, some of the shadowing work has started, about which Sir John may be able to tell you more, and it has been going on for a couple of months. The advice that I received from Sir John and others has been that a lengthier period, until 1 July, would give us greater confidence. We want to carry this out in a thorough manner and we want to be able to know that the results that we have are really robust. We have felt it wise and prudent to extend what was originally in our minds from 1 April to 1 July as a sensible working position. I am prepared to take the advice of those who are undertaking this, that they would like longer in order to have a higher level of confidence.

  21. You have paid tribute to your colleagues on your right for keeping the programme on schedule, but that programme has slipped a little.
  (Baroness Symons of Vernham Dean) I do not believe that it will make an overall difference to the ultimate position. If you like, we can go through the route-map of this year. I do not believe that it will make any difference to the time that we are able to take decisions about the way in which it would be best to market, which I have always seen as something that would happen towards the end of this year. I believe that it has given us greater confidence about the way in which the organisations are working. Would you like Sir John to add something on the shadow period?
  (Sir John Chisholm) We started with a pilot separation in the autumn of last year. We took one of the small parts of the Security Division and proved to ourselves that the system was working. From the 2 January, we separated internally the Security Division from the rest of DERA and implemented the systems—the management information systems, the financial systems, the personnel systems and the management structures—to make that separation work completely. The overall executive committee that had run DERA previously was split into two. Bill runs his part and we run the New DERA part separately. We carried out that complete separation as of 2 January. The reason why July looked to be a safer bet than April was that three months is a very short period. The figures come up for the first month just about now, so only now can we tell whether the management information systems are working well. We took the view that if there had been a problem there would not be time to put it right and to check that we had got it right in that first three-month period. So allowing ourselves six months, rather than three months, gave us greater security so that we could prove to ourselves that all the systems were working and working well.

  22. Are there other issues that may need to be resolved that may further delay the programme?
  (Baroness Symons of Vernham Dean) I am unaware of any now. I shall receive further advice in March as to how things are going. I do not expect there to be any difficulties or surprises in that advice. I do not want to prejudice the position of the officials; they will give me as honest a view as they want, but I shall be in a better position to answer that at the end of next month than I am now.

  23. New DERA becomes a public listed company on 1 July, vested as a public listed company. I imagine that means that it will operate as a plc from 1 July?
  (Baroness Symons of Vernham Dean) Yes, but it will still be owned, at that stage, by the MoD. Mr Jagger says he has something helpful to add.
  (Mr Jagger) It is not a plc at the moment. It will become a plc on 1 July.

  24. Are you confident that you have been able to organise New DERA's work programme before vesting day so as to ensure that there is no pause in its activities?
  (Baroness Symons of Vernham Dean) I turn to the Chief Executive on that, who is smiling so broadly that I imagine that he is confident.
  (Sir John Chisholm) Not surprisingly, that is an issue into which we have put tremendous concentration. Clearly, it is something that could financially significantly disturb the progress of the organisation. We have discussed with customers in detail the contracts that we expect to be let on the new organisation and we have, as a consequence, a high degree of confidence that our customers understand the urgency of that task. We are likely to receive a satisfactory launch platform for the new company.

Chairman

  25. I recall asking Dr Gilbert for permission to see the DERA corporate plan, but he declined. We cannot make a judgment unless we see that plan. With a package of data from MORI, would you put in the package your latest corporate plan, Sir John?
  (Baroness Symons of Vernham Dean) Perhaps I may answer that. The corporate plan is due to come to Ministers in March and they will want to have a look at it. Perhaps I may consult with the Secretary of State. I am sure that after the Government have duly consulted, we shall do our best, as always, Mr Chairman, to comply with your wishes.

  26. As usual, not as always! Certainly we could view it in the Ministry of Defence with two MoD policemen, fully armed, and with Sir John standing behind us as we read it and with no photocopying facilities.
  (Baroness Symons of Vernham Dean) That is a novel idea. We have talked about how things are progressing with New DERA. I do not know whether you feel that this is a suitable juncture at which to ask Mr Clifford to give you an update on what is happening with DSTL.

  27. We shall come on to that. I thought that DSTL was a delivery service.
  (Baroness Symons of Vernham Dean) I hesitate to use initials. I still find them extremely confusing, but none the less I am falling into the bad ways of the MoD.

  Chairman: No doubt it is sufficiently exciting to be a bureaucratic decision. We shall move on to the trading fund status.

Mr Cann

  28. What do you mean by a trading fund?
  (Sir John Chisholm) A trading fund is set up under legislation and there is legislation to support it. Essentially it means a separate bank account and the organisation operates from a separate bank account to that of the Department at large. All our transactions with respect to the Department at large are through what looks like ordinary contracts with the passing of monies in response to tasks put upon the organisation. So the organisation acts as though it is a private company. With respect to the Department, it acts as though it were a private company, but it is owned by the Department.

  29. Is it inside or outside PSBR?
  (Sir John Chisholm) It is inside PSBR.

  30. If it is inside PSBR, what is its function?
  (Sir John Chisholm) Its function is to allow the management of the trading fund to manage its resources in a coherent way, operating on an arm's length basis with respect to its customers and managing its resources so that they match the demands of the customers.

  31. So it is no different from an agency?
  (Sir John Chisholm) It is an agency, of course.

  32. Why do we not call it an agency?
  (Sir John Chisholm) Because there is a difference between a trading fund that is on the Vote, whereby the money gets passed down through the chief executive, in a hierarchical way, to a trading fund where the money comes from customers. No money comes to me by way of the Department. No money comes through the line structure of the organisation to fund the trading fund. If we cannot find customers to support our costs, we have to reduce our costs. There is no Vote that we can call upon to support our costs.

  33. That is the old Thatcherite concept, that if a hospital cannot pay for itself it should be closed down.
  (Sir John Chisholm) I am not able to comment on that.

  34. Will it provide services other than to the MoD?
  (Sir John Chisholm) At the moment DERA certainly does.

  35. No, DSTL.
  (Mr Clifford) The vast majority of the work will be for the MoD, but there will be other customers, principally in Government, but outside the department.

  36. That is interesting. You have to make a profit; you have to keep going, but on the one hand you are Government, but on the other hand you are commercial. Is that viable?
  (Mr Clifford) DERA has operated in that way for the best part of a decade and has achieved major efficiency advances from which our customers in the MoD and in other parts of British industry have benefited. Our modelling suggests that DSTL will be able to continue with that.

  37. Will the MoD open it to competition in relation to the sort of work that DSTL may be expected to do?
  (Mr Clifford) The work that DSTL will carry out will fall into two categories: that work which can only be done by DSTL because of its sensitivity and its role in international collaboration as Baroness Symons identified, but DSTL will include the Chemical and Biological Defence sector of DERA which has other customers, and will continue to have other customers, outside the MoD and outside Government.

  38. In splitting DERA it seems to me that you are splitting up the scientific base of the MoD. You are commercialising some of it and making the rest of it, the rump of it, into DSTL. Do you consider that the scientific and research base of the defence establishment of this country will be as well run as it was previously.
  (Baroness Symons of Vernham Dean) Perhaps I can answer that. We would not be doing this if we did not think that it would be as well run, if not better. One of the problems, which I know has been in the mind of the Committee in talking to us, is that this has been seen as an asset-stripping exercise on the part of the Government. That genuinely is not how we see it. We genuinely take a quite different view. Part of what we are doing is trying to open up the interesting work that DERA undertakes in a variety of different ways through commercial exploitation. That is an absolutely fundamental motivator. One of the others is that through DERA the Government can get more alongside some of the leading-edge technologies, like communications and information technology. We want to ensure that the two-way street operates better than it does at the moment. Yes, of course, there are questions about investment. I have said to the Committee before when we have discussed this that the need for investment is very great. We need to attract private-sector money into DERA in order to sustain the scientific effort. That is an absolutely genuine motivation on our part. I understand that you find that view one that you genuinely do not agree with, but it is one that we think is enormously important. You use the term "rump" about DSTL. I hope that you will accept that, as far as the Government are concerned, this is absolutely not a rump organisation. It is enormously important as an organisation because of the great deal of sensitivity of the work that it carries out, which is absolutely vital. In doing what we have done, in getting the Core Competence across a whole range of scientific activity has been absolutely crucial. Emphatically, we do not see it as a rump organisation. We believe that it will be an important, vibrant part of the science establishment.

  39. Even though it is only a quarter of what it was?
  (Baroness Symons of Vernham Dean) There are such organisations, for example, in Australia, where I have just been, which are smaller for the whole of the scientific effort. The quality of the people involved is a really important matter.


 
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