Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



  200. I was not thinking of that. I was thinking of the prevention costs. I know you have not had the findings of the board of inquiry, but do you have any measure of the extra costs that you might need to incur?
  (Sir Robert Walmsley) There is no reason why there is any technical work having to be done on the aircraft at all

  201. None at all?
  (Sir Robert Walmsley) I do not think so. Very unlikely.

  202. We may remind you of that. Paragraphs 2.4 and Figure 11 show that the Department has not yet set targets for its performance measures for the assessment phase and does not yet even have a measure in place to show whether risk is reduced sufficiently to enable a sound decision to be taken at Main Gate. Why is it taking so long to set performance measures and targets to judge the success of the assessment phase and when will you have them fully in place?
  (Sir Robert Walmsley) We will have them in place by the start of the next financial year, in about three months' time in other words. Why it has taken so long is partly because it is a very difficult thing to do—and I will explain that in a moment—but I would also like to emphasise that this is not just MPR assessment phase projects, this is all projects in the assessment phase. The first thing I want to emphasise about the assessment phase is that cutting the costs of the assessment phase is not necessarily a good thing. We do not want to produce a perverse incentive which would mean that if people were to discover technical problems during the assessment phase, in order to meet a target, they would refuse to own up to this and would refuse to ask for the extra money in case they broke their target. Where I think we are going is, first of all, to say that the assessment phase of work must underpin a robust decision at Main Gate, and so the first target that we have set and agreed is that for the next year 85 per cent of assessment phases must produce a decision at Main Gate which does not require any extra information or work to be done, and we will raise that to 90 per cent in succeeding years.

  203. I appreciate that this is not an easy task, Sir Robert, but we are three years from Smart procurement's first announcement and two years after its formal launch and you would think that it is a pretty important component of the process to be bedded down.
  (Sir Robert Walmsley) I think I have said I will have them ready by the end of March. If I could just mention the other point which is to treat the assessment phase as a mini project in its own right, and the tables here point out that there is a huge variability in compliance with the approved cost and time-scale targets for the assessment phase, particularly costs, and one in there which is a very big one and is a very interesting one is the fact that the BVRAAM costs have gone up very substantially. The reason they went up very substantially, which would normally be regarded as a bad thing, is that when we had the bids back we decided there was too much risk in what the contractor was proposing. We deliberately paid both the contractors extra money and gave them extra time. We paid for it and that, of course, counts as extra assessment phase work and therefore generates extra costs. I am absolutely convinced it was the right thing to do.

  204. I am going to ask you in a moment about the year-end incentive but you led me neatly into another issue which relates to paragraph 1.13 which says that the Department will plan at 50 per cent and approve at 90 per cent confidence levels. Can you explain to the Committee your rationale and how large, on average, at Main Gate you expect the resulting risk provisions for cost and time to be? What I have in mind is the Multi-Role Armoured Vehicle which is reporting a 31-month negative in-date variation because of the difference between those two estimates which is very large, and it seems to me that there is a great deal of risk of you introducing a level of self-deceit into this process and thinking you are doing well when you are, in fact, giving yourself a slack target. Can you tell us a little about that?
  (Sir Robert Walmsley) First of all, I totally accept the concern; it has been one that has worried us too. It will not do my organisation any good if we have got slack targets to work to. The first thing I would say is the 50 per cent level is the level that is most likely to happen and is the level on which we budget and on which we plan for the introduction of a new capability. In previous days we used to seek approval for the 50 per cent level but have a 20 per cent tolerance or a two-year tolerance before we had to go back and tell anybody that things were going wrong. We have put that behind us now and instead we ask for the 90 per cent figures which are effectively set at the approval level. If we bust that we have bust the approval and we have to go back and seek re-approval. So no project should break its approval and that is the logic in comparing a most likely event with the approved event. The difference between the 50 and the 90 per cent—we would expect a decrease as the project moves through the assessment phase and then, of course, into the full-scale development and manufacturing phase. The absolute levels of the difference, I agree, are very variable and I think I have had bad luck in that one of the first projects to appear under the new regime, MRAV, is a collaborative programme with two nations in it. I very much hope that, about 15 months after we signed the contract, on 5 February next month, that the Netherlands will sign a contract amendment to bring a third nation in. That has been a risk and has clearly caused uncertainty. It is a risk we were able to foresee. There will be a number of other international factors that I predict with great confidence will bedevil this programme as we move through development. Typical, would be acceptance of the result of the reliability demonstrations on which the United Kingdom has insisted, learning from our experience with the Challenger 2 tank, for which we have programmed a very substantial amount of time on approving the basic vehicle. On the assumption we get through that, we then have the question of integrating the various United Kingdom mission-specific systems into the vehicle and each of those imposes its own separate set of integration risks. We break the programme down into the various components, we look at the estimates of each one and then add up what they could turn out to be. If you do it arithmetically the 31 does not look a generous allowance of time to me.

  205. Given that it is an international collaborative project, I suspect we are not going to argue with you, but it does make you think it may be a good idea to keep a running monitor on the aggregate difference.
  (Sir Robert Walmsley) I agree but the Sea Wolf situation where we predicted three months (and we have used up that and more already) shows me we are not institutionally generous to ourselves.

  206. Can I ask for a note on BVRAAM, Future Transport Aircraft and the Type-45 Destroyer and the two levels of confidence limit for each of those?
  (Sir Robert Walmsley) Certainly[1].

  207. When we were taking evidence in the 1994 Report the Committee was assured that three-point estimating was now used routinely on all projects and undertaken thoroughly. Given that three-point estimating is a fundamental aspect of Smart acquisition, can you explain to the Committee when the National Audit Office investigated it at 31 March of this year that only two of the ten assessment phase projects had reliable three-point cost and time estimates?
  (Sir Robert Walmsley) I cannot justify it. I could explain it in great detail for each one and I think the Report makes it clear that there are now only three outstanding and each of them has their own story to tell. You know that we have changed the procurement strategy for BOWMAN and we have asked as part of the bids that are due back from the companies on 7 February that they will provide us with enough data to support three point estimates. We simply did not have the data from the current competition in order to put any sensible figures into this report, which was signed off in November. We will have that in February so we will get those in for next year. And, Chairman, if my book had not fallen to bits because of the new binding adopted in this year's Report—I apologise to the Comptroller and Auditor General—I would be doing much better in finding my notes. This is called "perfect" binding as opposed to last year's which was slot binding and which worked.

  208. Let's not worry about the binding. What concerns me here is a problem we see in Whitehall quite often (not necessarily with the MoD) which is that when the NAO comes along and looks at something, suddenly the performance changes and here you have the three point estimating which had been supposedly the norm in your Department for six years, and we find in only two out of the ten cases here has it been pursued until the NAO looked at it. You can realise that that gives us a little dent in our confidence about the use of the system.
  (Sir Robert Walmsley) I understand. I would also place on record that my finance staff over the last year have changed to resource accounting and budgeting and they are the people who have to implement all these changes and evaluate them and they have had the busiest year of their professional lives. Of course, it is not satisfactory that we gave you an assurance to do something and we failed to do it, but over the last year the people involved in preparing this work have worked harder than they have ever done before.

  209. I will take your word for that. You will ensure of course that we see the BOWMAN estimate when it is available. This is not meant to be a mischievous question, but we spend all our time looking at your worst cases; is there a major project that you are proud of?
  (Sir Robert Walmsley) Yes.

  210. Which one?
  (Sir Robert Walmsley) Trident, Tomahawk and Challenger 2's recovery.

  211. Trident and Tomahawk are interesting, largely off-the-shelf and ones where you did not have a great deal of scope to alter the spec.
  (Sir Robert Walmsley) The nuclear propulsion plant did not feel off-the-shelf to me, Chairman.

  Chairman: I will mull on those during the course of the meeting and I will widen it out.

Mr Campbell

  212. Sir Robert, I would like to ask you some specific questions about projects. I want, first of all, to go back to one which the Chairman mentioned which is the Merlin Mk 1 and paragraph 1.9. If I heard you correctly, you said that you do not expect any further additional costs on technical grounds because of what has happened to the helicopter so far, but I want to look at it more widely than that. Can you give us an assessment of what the effect of the problems with Merlin has been on, firstly, its availability and, secondly, your capability for moving both people and stores?
  (Sir Robert Walmsley) Admiral Blackham will talk about the operational capability, but Merlin Mk I is essentially an anti-submarine warfare helicopter and does not have a primary role of moving people or stores, that falls to the RAF Merlin Mark 3. The Merlin development programme, which of course includes both aircraft types, has not been a good experience on the grounds of cost or delay. There is no doubt that it is attributed across a far smaller number of aircraft than was originally envisaged, but I repeat what I said to the Chairman about this last crash, from what I know of the likely findings of the board of inquiry there will be no requirement to undertake modifications to any aircraft. We have learnt an enormous number of things from the programme, including accounting for inflation, and being very, very cautious about getting into a programme where there are four different authorities providing money. The complexity of the financing is part of the reason why we made a number of accounting errors (which I am happy to acknowledge and have done before) in preparing the costs for this programme. You will see from MPR 2000 that it has not been delayed any further this year. So the Merlin programme is now reaching the front-line and I will leave Admiral Blackham to talk about its operational capability and what that does for the armed services.
  (Vice Admiral Sir Jeremy Blackham) The first thing to say is that the Merlin Mk 1 is flying again and started flying before Christmas. It will not fly over the sea until we are quite certain what the board of inquiry has to say about the flotation bag arrangements, but my understanding of the board of inquiry is exactly as CDP has just explained it. I expect that the first Merlin squadron will embark on time in the early part of this year and I expect that when it gets to its planned embarked operational capability check, which is early next year, that it will show itself to be a very substantial improvement on the Sea King Helicopter, which is of course what we would expect it to be. Speaking as a naval officer, which I am not really supposed to do, this is a very exciting prospect. This is a very substantial improvement and a helicopter which will be the most advanced anti-submarine warfare helicopter anywhere, so I am extremely optimistic about it.

  213. Let me ask you about the Apache Attack Helicopter which, as I understand it, there was a requirement originally for a generic air-to-air missile but according to the Report, one is no longer deemed to be necessary. Why is that so?
  (Vice Admiral Sir Jeremy Blackham) The Air Defence Programme is an integrated programme, if I can put it that way. What we are interested in defending, by and large, is the airspace within which we are going to operate, so any particular weapon or defensive system is part of a whole and the Apache would fly within our overall air defence umbrella, so to speak, and the Apache we are getting has a substantially improved defensive aid suite over that which the United States deployed to Kosovo and we have, as a result of studies we have done, concluded that we do not need the air-to-air missile and that the money that we might spend on that is better invested in other parts of our air defence overall capability, and that is the reason we have taken it out.

  214. Let me pick up a similar point. Paragraph 1.12 says that there has been a saving of £32 million by deleting the gunnery requirement on the Eurofighter. Similarly, why is that no longer necessary?
  (Vice Admiral Sir Jeremy Blackham) I have tried very hard to discover when a gun was last used by a fighter aircraft and I have identified two cases during the Gulf War when an A10 used a gun against a helicopter. To the best of my knowledge, and my staff's knowledge, those are the only two examples in the last ten or 15 years in which a gun has been used. Our conclusion is that, given the effect that a gun has on an aircraft, it provides additional stress and wear for the aircraft itself, it requires additional training and, given the fact we are purchasing a missile, the ASRAAM, whose purpose is to be highly agile and to be useful in close combat, in the, I suspect, rather rare circumstances in which close combat is likely to take place in the highest levels of warfare, given all of that, we have concluded that it is not the best investment for our money. I cannot find, apart from the two I quoted you, any case where a gun has been used by an aircraft.

  215. You mentioned ASRAAM, and that is mentioned in Figure 10 showing delays to ASRAAM, and one of the results of the delays is that the RAF is still using, as I understand it, Sidewinder, which is a much less effective weapon. What are the implications of this?
  (Vice Admiral Sir Jeremy Blackham) The implications are that it cannot do what ASRAAM will be able to do. The position we have got at the moment is a position we have had for a number of years and planned to have. We would have a combination of Sidewinder missiles and ASRAAM missiles. Obviously I regret the delay in ASRAAM, but I want it to work properly when it arrives and I am fairly confident the work now being undertaken will achieve a high degree of compliance with KURs, although I am not sure that we will get full compliance.

  216. The point I am getting at, and correct me if I am wrong, is that any delay or deletion from a programmes means that that capability has to be made up from somewhere, so there is a cost implication that goes beyond the cost of putting right or overcoming any technical problems. There is a cost implication of keeping equipment in service longer than you would have expected. That is not just a financial cost but it is a cost in terms of capability, is it not?
  (Vice Admiral Sir Jeremy Blackham) It is certainly a cost in terms of capability.

  217. And a concern?
  (Vice Admiral Sir Jeremy Blackham) And I regret the delay of arrival in-service of any system. I am also aware that we are always operating right at the cutting edge of technology particularly in the areas of system integration. We are demanding standards to enable us to take on the world's best systems. So whilst I regret it, I cannot claim to be wholly surprised when we have some of these difficulties. As far as financial costs are concerned, we did not plan to dispense with the AIM 9 Sidewinder missile in any event, but we will still be operating them on other aircraft well beyond the date at which we are expecting to accept ASRAAM.

  218. Let me take you from the air to the sea then because Figure 10 says that it will be three years before the Landing Platform Dock (Replacement) will enter service. You talked about "cutting edge" of technology but the fact is that as long as you rely on the steam-powered HMS Fearless we are not at the cutting edge of technology. Does it not inevitably mean that for the period we have been waiting for the Landing Platform Dock Replacement there is a capability gap?
  (Vice Admiral Sir Jeremy Blackham) We have less capability than we would have had if we had the thing on time, absolutely. It means that we will have to increase the length of service of HMS Fearless. You have already remarked that is a unique system within the Navy and that has training costs and it has financial costs, and I regret it, but I still want the LPD to work properly when it arrives.

  219. I do not know whether this is a question for you or Sir Robert, but what is your estimation of how many naval vessels, whether they are replacements or entirely new systems, are held up somewhere in the pipeline by financial considerations, in other words they are not being brought forward as perhaps had been anticipated, as opposed to technical difficulties?
  (Vice Admiral Sir Jeremy Blackham) I ought to check this but I am not aware of any that are held up by financial considerations at the moment. The LPD is not held up by financial considerations.
  (Sir Robert Walmsley) I think Mr Campbell is talking about the wider budgetary implications of paying to run on Fearless and wondering how that travels through the system. You have heard me say today about Sting Ray having to face up to budgetary consequences. I do not think it is easy ever to attribute a specific consequence to a specific extra cost.

1   Note: Not printed. Back

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