Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



  220. I am also interested in the ships which the Strategic Defence Review said were necessary and appeared on lists as in the pipeline but they have not appeared, and the feeling that because of financial considerations they are being held back.
  (Vice Admiral Sir Jeremy Blackham) I am not aware that any of our ship programmes are currently being held back by financial considerations. The LPD is certainly not one of those. There will be financial consequences but they will not necessarily fall on the equipment programme, of course, because the additional costs incurred by running on Fearless are manpower costs and support costs from elsewhere.

  221. I am very relieved to hear that. Does that mean that the carriers are on target?
  (Vice Admiral Sir Jeremy Blackham) I think that probably is a proper question for Sir Robert, but to the best of my knowledge they are spot on target.
  (Sir Robert Walmsley) They are.

  222. Very good. This is a general point which comes at the end of those rather specific questions. I was left with the feeling that there may be concern that slippage and delays leave us, at best, with a second choice option and, at worst, with gaps in our capability.
  (Vice Admiral Sir Jeremy Blackham) We specify new capability because we want it to match the potential threat, so it follows almost inevitably that if that is linked there is a risk that we will not have the matching capability that we want to have in the time-scale we want it. I am not sure that I can say very much more about it. Obviously I regret the delay into service of any equipment, and Sir Robert knows I do.
  (Sir Robert Walmsley) One of the points I would make about this Report is that, since moving to resource accounting and budgeting, there is now a direct cost associated with delaying of introduction into service of a piece of equipment, once we have started spending money on it, and buried in all these figures that we have been looking at this afternoon is something called "interest on capital" which has never appeared in my costs before. In terms of having achieved a tiny overall cost reduction this year, it is worth emphasising that many programmes have a cost increase on them as a result of delay—six programmes over the past 12 months—as a result of increased interest on capital which is designed, of course, to incentivise me via my budget to deliver things quicker.

  223. Paragraph 2.18 shows that the percentage of procurement costs spent during the assessment phase is lower than the 15 per cent recommended by the Strategic Defence Review. Am I right in thinking, then, that some of the problems across these projects could be said to be the result of work not being done properly early enough?
  (Sir Robert Walmsley) I think that is a fair comment but I have looked back at each of them where we seem to have underspent and there may indeed be a correlation between the small degree of expenditure and what happens. I try to imagine what we would have done differently because some of these were package deals where we sought performance-based contracts. Industry was quite happy to offer it to us. They might have spent 18 months in bidding. Were we then at that stage to say, as we did with BVRAAM, "We want you to go away and we will give you more money to spend more time investigating?" A very interesting case would be the replacement Maritime Patrol Aircraft. We have got good bids in, we have assessed them for a long time, industry has taken the risk, and we have not been left with the financial consequences of that. But I do accept the basic thesis that we are not spending 15 per cent. Today just having seen the announcement about our participation in the Joint Strike Fighter Programme, looking at our current estimates of the cost of that programme, the US spent $2 billion on the equivalent of the assessment phase and in their own budget are going to spend something approaching $100 billion on development and production. So there is a hugely challenging programme which is only hitting two per cent, and I am beginning to question whether this 15 per cent number, which is probably right for some types of project, does have the general applicability we once assumed it to have.


  224. Just as a matter of curiosity, does the F22 or Joint Strike Fighter fly with or without a gun?
  (Vice Admiral Sir Jeremy Blackham) The F22 has a gun and the Joint Strike Fighter is still to be resolved; it may do.

  225. Are there any other of the current generation of aircraft?
  (Vice Admiral Sir Jeremy Blackham) Eurofighter, as you know, was initially designed with a gun and a number of nations operating Eurofighter will have a gun.

  Chairman: I see. Simon Burns?

Mr Burns

  226. We have obviously been dealing both on Monday and today with problems that have happened in the past or are happening now. I would like to look slightly to the future as to how we can try and avoid some of these problems and I would like to go to the short-term strategic air lift programme. With regard to the unsuccessful bid of Antonov, would it be right to say that in total the cost for that bid would have been about £200 million.?
  (Sir Robert Walmsley) I do not think that information is in this Report. The C&AG is nodding, maybe he is telling me it is. I am not familiar with it. Digging back into my memory, I have to make it quite clear that Antonov was not a solution to the requirement for secure assured access to an airlift capability. So it was obviously cheaper but you could not guarantee it would be available, and therefore it did not meet the requirement.

  227. In what way would it not be available?
  (Sir Robert Walmsley) We are right off MPR 2000 but I am quite happy to try to answer the question.


  228. I will rule it out of order if it is but it is not yet.
  (Sir Robert Walmsley) We had to recognise that the design authority for this aircraft was split between, effectively, Kiev and Moscow[2]. If air safety clearance was required in any country, and it might be, then we would have to apply to them for some of the information and assurance that we would require in order to substantiate the safety clearance of the aircraft. There is at least a possibility that there might be circumstances where we would wish to deploy aircraft into areas which would not meet with automatic, or certainly prompt clearance of the aircraft design authority parent nations. Quite frankly, those are the sort of operations which are sometimes the most important and just the time when the whole purpose of secure assured airlift comes home to roost.

Mr Burns

  229. Can I ask you about the C17 successful bid. Would I be right in thinking the total leasing cost of the four planes on a seven-year lease is about £500 million?
  (Sir Robert Walmsley) You would[3].

  230. Does that include logistical support
  (Sir Robert Walmsley) It does and we have come to a very unusual arrangement with the short-term strategic airlift which is that we have agreed that we will depend on the United States' Air Force for logistics support. What that has meant is that we have not had to undergo any significant infrastructure costs. You are well aware that when you start introducing new aircraft into service the cost of the ground equipment, training the people, introducing new procedures is an enormous up-front cost. We have been able to avoid that.

  231. If my figures on Antonov are right, we are ending up with a system which is more than double the cost of the alternative bid although you have highlighted some problems.
  (Sir Robert Walmsley) Also I made no comment on the veracity or otherwise of your figures on Antonov.

  232. I accept that, but if my figures are accurate it is more than double the cost. Would it also be fair to say that with the C17 contracts and leasing arrangement, in effect, it is going to cost £200,000 per flying hour for one of those planes?
  (Sir Robert Walmsley) I simply do not know the answer.

  233. So you probably will not know the answer to my next question.
  (Sir Robert Walmsley) Probably not.

  234. Which is what would the comparable costs be to other existing transport systems like Tri-star?
  (Sir Robert Walmsley) What I can say is that the C17 is hugely cost-effective in operation for what it can do. You cannot compare a C17 capability with a Tri-star capability.

  235. I want to get on to what it does and does not do in a minute. On the question of the total cost of the C17, would it be fair to say that some of the costs are being distributed around other MoD budgets, and in particular with regard to maintenance for example?
  (Sir Robert Walmsley) Not that I am aware of.

  236. Would you be able to check?
  (Sir Robert Walmsley) I would but this is not a normal depth of detail I would expect to go into on a project that is not part of MPR 2000. I can say that from my memory the costs you have quoted are about right. I think they are slightly higher because we have got an option in there to run the lease for longer than seven years, perhaps for eight or perhaps for nine. There is no question of us having gone round the system and concealed the true costs of operating C17. The costs that we have used are the right costs and do not hide any costs in anybody else's budget.

  237. Would it be fair to say that the Treasury would have preferred Antonov?
  (Sir Robert Walmsley) No.

  238. Are you sure?
  (Sir Robert Walmsley) No.

  239. You are not sure?
  (Sir Robert Walmsley) I am not sure. I said it would not be fair to say that because they never said that to me, but I cannot be sure that they do not think that.

2   Note by Witness: The Design Authority for this aircraft was held by the Antonov Design Bureau (ADB) in Kiev. For completeness, the record should show that Air Foyle had proposed that Marshall Aerospace become a Delegated Design Authority. Notwithstanding this, the underpinning airworthiness certification could be withdrawn by ADB in the event that the UK planned to use the aircraft for purposes which the Ukrainians or Russians disapproved. Since the aircraft would have been on the UK Military Register, obtaining diplomatic clearance to fly into a country would be a UK responsibility. Back

3   Note: See Evidence, Appendix 2, page 37 (PAC 00-01/62). Back

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