Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. I am sorry?
  (Mr Tebbit) I did not feel the need to ask for a political direction in order to approve the funding and the signing of the contract for Meteor.

  61. A political direction is when an officer of the Navy gives an order and the seaman says "aye, aye, Sir", which means "yes, I will do it but I think you are giving the wrong order"?
  (Mr Tebbit) No, when an Accounting Officer says "I cannot justify it on value for money grounds, therefore you must decide on political grounds". That was not the case there, that was fine.

  62. Just to go into a bit more detail, the second bullet at paragraph 4.8 records that only seven of the 17 decisions examined by the National Audit Office included quantified analysis of industrial and political factors. The final bullet of paragraph 4.8 says that over half of the 17 decisions were taken collectively by Ministers. Can you reassure us that in future, given the emphasis which paragraph 4.6 places on "meeting the overall needs of the country not just narrow departmental objectives" you will, in consultation with other Government Departments and industry, undertake more quantified analysis? Indeed, why are there not quantified analyses for all these decisions?
  (Mr Tebbit) We do basically. The easiest thing I can do to answer that, if I can find the wretched page, is to show you the results of our analysis of when those factors are taken into account. I am sorry, I am having trouble looking it up. Perhaps Sir Robert Walmsley can put his finger on it.


  63. There are a series of lists in Appendix C, page 53 onwards.
  (Mr Tebbit) There is a table here showing the difference between what we expected to be the benefits in terms of wider factors—page 22—and what transpired to be the case subsequently. We do follow these things rather carefully. I was interested that it showed that we were over-performing really, we were doing much better than had originally been expected in terms of exceeding expectations, for example, over the political impact of decisions, etc. This is something that we are very sensitive to and are by no means negligent of the fact that, for example, we expected projects to be neutral politically, 24 was the score and we found that they came out at 70 in reality. In terms of inter-operability we expected 33 and it came out at 66. Industrial factors we expected 36 and it came out at 69. I think we are very sensitive to this point that often these, albeit unquantified, factors can be quite significant.

Mr Leigh

  64. I have difficulty in understanding on page 22 this negative nought, neutral 24, beneficial 76. We are all politicians around the table and we do not normally give ourselves numbers minus or plus, the electorate do. I do not know how you can be so detailed in this.
  (Mr Tebbit) It is the NAO that did this and we were happy to respond.

  65. Perhaps the Comptroller and Auditor General can help on this.
  (Mr Tebbit) They do pin us down on these quantifiable details.
  (Mr Banfield) We asked the project managers involved in projects to assess what benefits they expected to achieve at the outset and what they had achieved. What this table shows is percentage numbers, so the 24 per cent in that top box is 24 per cent of project managers expected the political benefits to be neutral in co-operation and as it turns out that expectation has been met or exceeded. That is the project managers' perspective.
  (Mr Tebbit) I know that is not quantification exactly but some of these factors are extraordinarily difficult to quantify, they are not susceptible to straight forward analysis. For example, whenever we try to predict employment levels associated with particular courses of action it has been very difficult after the event to establish whether that happened because so much else is going on. It is very, very difficult indeed to do the quantified analysis in this area. I think that is quite a good indicator of the sensitivity that we have within the organisation to these factors.

  66. Let us just go back to paragraph 4.8, bullet four. On the three decisions referred to in that bullet there were wider factors that were central to the decision-making process. Were the wider benefits quantified and is their achievement being closely monitored?
  (Mr Tebbit) This is TRIGAT?

  67. Yes. Were the wider benefits quantified and is their achievement being closely monitored?
  (Mr Tebbit) I think I must ask Sir Robert Walmsley on that because it is pretty early to know.
  (Sir Robert Walmsley) In the case of TRIGAT I can assure you they are not being achieved. On A400M we have not placed that on contract yet. Apart from the wider benefits BAE SYSTEMS, as the shareholder in Airbus, should have wing leadership on the A400M; it is introducing a new carbon fibre composite technology. I am absolutely confident that that wider benefit will be secured. We monitor that absolutely crucially because clearly if the wing leadership on this project were to move overseas then we would feel in a sense that we had not achieved one of the most important industrial benefits from it. We monitor it all the time. On the last one, Storm Shadow, we saw the formation of Matra BAe Dynamics. That directly flowed—no question about that—from the United Kingdom purchasing Storm Shadow, which is to all intents and purposes an identical missile to Apache, a French missile developed by Matra. As a result of us ordering the same missile the two companies came together and have slowly accrued to themselves virtually the totality of the European missile capability and they are now only just not the first and biggest missile company in the world. That is a direct benefit and we monitored it.

  68. Paragraph 4.15, page 45 refers to the Joint Requirements Oversight Council in the US. Does this work well and is this something that we should replicate? This Council is increasingly supported by Congress, it says.
  (Sir Robert Walmsley) All our requirements are formulated jointly. We went away from having a Naval Requirements Committee, an Air Force Requirements Committee and an Army Requirements Committee long before I ever darkened the doors of the Ministry of Defence. It is such an accustomed way of working inside our Ministry of Defence. If you have seen Admiral Blackham come here and talk about Eurofighter, talk about land equipment, that is the way we work. It is essential to ensure inter-service interoperability. We could not contemplate doing it any other way.

  69. So they are learning from us rather than the other way round?
  (Sir Robert Walmsley) I do not think they are. They are learning it for themselves.

Mr Campbell

  70. Mr Tebbit, I am looking at the Executive Summary, page 1, paragraph 4, and it is a point that Mr Steinberg picked up initially about what the report refers to as post-Cold War changes in the global security environment, and then goes into detail about the way in which trans-national companies are having to change and the fact of life that there will be broader co-operation in the future. It is a rather simple question but who is leading this process? Is it trans-national companies or is it governments?
  (Mr Tebbit) We encourage the companies, obviously, to follow their own commercial judgments because we still find that that is the best way of establishing what is the most competitive and value for money way of operating, but of course governments have a role in this and the extent to which companies merge and demerge and forge collaborative programmes is very much something that we are engaged in fostering and encouraging or, if we felt that competition would be as it were eroded and damaged, preventing if necessary. That has not come to that but clearly in some areas one has to take care, for example, when BAE SYSTEMS took over Marconi it was necessary for us to put in place some arrangements to ensure that competition was preserved in the way in which those two bits operated after the merger. It is a combination of the two. We expect industry to make its own judgments. They have shareholders to satisfy.

  71. That is not a concern as to who is setting the context in which these decisions are made and who is establishing the framework. I could not find the exact reference but there is a reference in the report to the view that formal bodies which have been set up to promote co-operation, for example, NATO conferences, national armaments directorates, have been less successful in identifying fully fledged co-operative programmes rather than working level contacts which I interpreted as a lot of the work is going on within companies and between companies and to some extent the national governments are looking on.
  (Mr Tebbit) I see what you mean. This is how individuals' specific collaborative ideas came forward. In terms of the bigger picture it is governments that very much do set the context. We are the ones that put in place the regulatory framework within which companies can merge and demerge and all that. We are the ones who are the customers. Customers are king and we are the ones who call the shots there. The role of government remains absolutely critical. There is still, for example, a golden share in BAe SYSTEMS but that does not mean to say that within that framework you cannot have collaborative ideas coming up from project co-operation rather than simply from top-down instruction. The top-down instruction that was referred to there was more about these major groups like the Conference of National Armaments Directors and those sorts of things than anything else.

  72. I am glad to hear that. It is about the co-operation between governments that I want to move on to next. You used an interesting phrase earlier to the effect that whenever it is co-operation between us and the US we are the junior partner. Appendix A lists many of the projects of collaboration with our European partners but nevertheless some very significant ones have been with the United States. A company in my constituency, albeit as a supplier to the United States rather than perhaps involved in co-operation and collaboration, complained to me that the boot always seems to be on the foot of the United States, that it is very clear who holds the power in this and it is much easier in his view for the United States to have access to what is happening over here than it is for our companies to have access over there.
  (Mr Tebbit) To an extent that is right. It is a statement of fact, just a reality, when I said that we are the junior partner, because of size. The US budget is $300 billion a year and they say it is not enough and Congress and their parliamentarians will probably vote them a lot more, and ours is not quite that large, which is why I said we are the junior partner.

  73. I understand that, but I am also concerned about the legislative framework in which these decisions are made.
  (Mr Tebbit) That is right. It is for that reason that the Declaration of Principles between us is so very important. The Declaration of Principles says very clearly that we would expect our companies operating in the United States to be no more disadvantaged than would American companies in the United Kingdom, in other words a genuine level playing field. That statement is absolutely critical and I have to say that Sir Robert Walmsley played a major part in getting that forward and the last US administration was very helpful, so it is vital that we should get that so that our companies on both sides of the Atlantic are treated broadly equally. There are regulatory problems, there are difficulties. The US is not the least protectionist country, or has been, but the Government there have been making a lot of progress in easing these restrictions and progressively we expect them to be extended to European companies as well. That is one aspect. The other aspect is what is happening at the industrial company level. BAE SYSTEMS in this environment has taken over big chunks of American industry. Rolls-Royce has also done a similar thing. BAE SYSTEMS sell more in the United States than they do in the United Kingdom these days. The industry is therefore getting it together as well. Things are changing a lot but the Declaration of Principles is a very important element in this process of ensuring that we do have equal trading terms.

  74. Can I take you to another area that Mr Leigh has been picking on and, not surprisingly, I am not sure that you did not answer the question entirely.
  (Mr Tebbit) What do you mean, "not surprisingly"?

  75. I am sorry. I am not here to offend you but I was not surprised, given the direction that the answer took us into. When the Secretary of State was George Robertson he talked about co-operation meeting the overall needs of the country, not just narrow departmental objectives. I want to take you back to whether or not we are moving towards that or whether it is achievable and ask you a two-part question. To what extent has the Accounting Officer's memorandum in April 2000 changed the way that the MoD goes about this matter? The second part is, to what extent are the wider needs, including of other areas of government, built in at the beginning of a possible co-operative or collaborative project?
  (Mr Tebbit) The answer to your first question is, I hope, very little, if not, not at all. I hope that even before that came out as, as it were, an Accounting Officer amendment, we were already operating in a way which took into account the wider interests of government. I explained how we ensured that we consulted all other interests as we develop our equipment programmes within government and that really is the case. The only caveat I would say is that at the end of the day each government department has to be responsible for its own area; otherwise you have complete chaos. At the end of the day I still have to make recommendations based on what seems to be right for defence, but it is in the context of taking wider considerations into account. I am sorry: what was the second part of your question?

  76. It was, to what extent are the concerns of other areas of government taken into account? For example, I think you mentioned the employment side of some of these projects. To what extent is that built in as an important consideration at the beginning?
  (Mr Tebbit) At the beginning we are looking at capabilities, very broad capabilities, often scientific research. At that stage it will obviously be premature to do that, but once we are moving to the identification of a programme, then we do build in these wider considerations, building up to a decision, what we call main gate, when we have got all the arguments and all the elements properly established.

  77. The point I am getting at is to what extent—and I suppose I am going to answer it by saying to the largest possible extent—is it driven by the requirements of defence, which is the first requirement?
  (Mr Tebbit) Exactly.

  78. To what extent are other factors taken into account.
  (Mr Tebbit) What I am trying to avoid saying is that there is no point in just doing something for the sake of creating jobs. They have to meet the defence specification and the defence requirement. The best way of doing so is through proper competitions and, although all factors are taken into account, at the end of the day value for money for the defence task is what decides the matter, but that is interpreted quite broadly in terms of the longer term interests of defence, including capacity and capability for Britain, not just in terms of the immediate issue. Sometimes there are wider considerations like a broad family of weapons or interests where one might do one thing in one area in return for some other pattern of collaboration in another. There are balancing factors, but basically we have to come down to value for money for defence.

  79. Can I go back to my final question and back to the Executive Summary, paragraph 14, which talks about private finance initiatives and public/private partnerships and other matters. I am just wondering to what extent, even where projects are clearly defensive in their nature and in the purpose of the project, the rules are changing here. I do not want to open up a debate on the rights or wrongs of the decision but I have in mind the PFI project to buy or lease six roll-on/roll-off ferries for the Navy, and because we went down the route of the PFI it meant that European procurement rules meant that it was not just a matter of putting the work into British yards the way it would have been if it had been a warship, but actually out to wider procurement. I understand that and I am not trying to open that up again. The point that I am making is, are those decisions changing the way in which projects are awarded and the way in which British companies are able to operate?
  (Mr Tebbit) The short answer is, we have not yet managed to find a PFI or a PPP possibility within the context of the core defence programme. We have looked at bits of the Eurofighter programme to see whether that could have PFI or PPP potential, which need not necessarily be within the European rules but whether we could do a PFI arrangement for that. We have also looked at the Submarine Rescue Service, and in neither case have we actually managed to find a PFI result. We will keep looking. PFI is a bit more common in Britain than it is with our partners and therefore it is particularly hard to promote that as a way of collaboration at present, but we are continuing to look at those options.

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